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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORT
PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number: 1-12145
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SNYDER COMMUNICATIONS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 52-1983617
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6903 Rockledge Drive, 15th Floor, Bethesda, MD 20817
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(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (301) 468-1010
______________
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, $.001 par value New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
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(Title of class)
- -------------------------------------------------------
(Title of class)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 10, 1999 was approximately $1,544,753,042.
The number of shares outstanding of the registrant's Common Stock, $.001
par value, as of March 10, 1999 was 71,869,410 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's definitive proxy statement to be
mailed to stockholders in connection with the registrant's annual stockholders'
meeting to be held on May 6, 1999 ("Proxy Statement") are incorporated by
reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
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ITEM DESCRIPTION PAGE
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PART I
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1 Business 1
2 Properties 9
3 Legal Proceedings 9
4 Submission of Matters to a Vote of Securities Holders 9
PART II
5 Market for Registrant's Common Equity and Related
Stockholder Matters 10
6 Selected Financial Data 10
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
7A Quantitative and Qualitative Disclosures About
Market Risk 23
8 Financial Statements and Supplementary Data 24
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 58
PART III
10 Directors and Executive Officers of the Registrant 58
11 Executive Compensation 58
12 Security Ownership of Certain Beneficial Owners
and Management 58
13 Certain Relationships and Related Transactions 58
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 58
Signatures 61
Index to Exhibits 62
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PART I
Item 1. Business
General
The Company is a rapidly growing international provider of integrated marketing
solutions primarily to Fortune 500 size companies. The Company integrates its
various capabilities, including its proprietary distribution channels, to
produce value-added marketing solutions. The Company identifies high value
market segments; designs and implements marketing programs to reach them;
initiates and closes sales on behalf of its clients; and provides customer care,
retention and loyalty marketing services. By expanding the range of its
capabilities, its specialized distribution channels and its geographic presence,
the Company seeks to provide a single source for its clients' outsourced sales
and marketing needs.
The Company's consolidated revenues, restated to include revenues from all
acquisitions accounted for as pooling of interests transactions for all reported
periods, increased from $493.9 million in 1996 to $612.0 million in 1997, and to
$815.3 million in 1998. The majority of the Company's operations were located in
the United States, but the Company also has established operations in the United
Kingdom and Western Europe.
The Company's clients primarily are global companies with large annual sales and
marketing expenditures facing significant competitive pressures to retain or
expand market share. The clients operate in various industries, including
pharmaceuticals, consumer packaged goods, financial services, telecommunications
and gas and electric utilities. The Company's ten largest clients based on 1998
revenues, listed alphabetically, are Astra Pharmaceuticals, Bayer, Bristol-Myers
Squibb, Eastern Natural Gas, Eli Lilly, GTE, Johnson & Johnson, McDonald's,
Procter & Gamble and Zeneca. The Company provides multiple services to most of
its largest clients.
Since completing its initial public offering in September 1996, the Company has
significantly expanded the range of marketing and sales services it is able to
offer its clients. This expansion has been accomplished both by building and
initiating new programs and service offerings and by acquiring businesses that
offer complementary services. The service offerings of acquired companies have
been combined with those previously offered by the Company to create three
operating groups: Direct Services; Healthcare Services; and Creative Services.
Utilizing the service offerings of its three operating groups, the Company's
goal is to provide integrated marketing solutions for its clients. Direct
services are marketing and sales solutions designed to directly reach certain,
sometimes targeted, consumer and business groups. Healthcare services are
designed to establish and monitor healthcare marketing plans, to provide
face-to-face interaction with physicians and to conduct educational research and
communications services. Creative services are designed to provide the right
kind of advertising for clients.
During 1997 and 1998, the Company made strategic acquisitions to broaden the
range of services it provides to clients, to expand the geographic reach of its
services and to enhance its clients' access to strategic consumer groups. To
complement and supplement its existing management depth, the Company retained
key members of management at many of the acquired companies.
Marketing Opportunities
The Company believes that it is well positioned to capitalize on increased
demand for marketing services due to the outsourcing of marketing and sales
functions, changes in the regulatory environment and increased demand for
marketing services in Europe.
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Outsourcing. In recent years, many businesses have integrated outsourcers into
their overall marketing strategies. The Company believes that, as more companies
adopt capital saving strategies and focus on their core competencies, the demand
for outsourced marketing services will increase. The Company believes that it is
well positioned to capitalize on the continued momentum of the corporate trend
toward outsourcing. The Company also perceives that businesses value service
providers who can provide them with a wide range of services, thereby lowering
transaction costs. The Company believes that its recent acquisitions increase
its competitive position by, among other things, expanding the scope and scale
of services the Company can offer its clients.
Deregulation--Changes in the Regulatory Environment. The Company believes that
there is a trend towards deregulation of industry in the United States and the
United Kingdom and continental Europe. A typical result of deregulation is
increased competition as companies seek to acquire market share. Deregulation
often finds companies with less developed internal sales capabilities than are
needed in the changing competitive environment. For example, telecommunications
companies now actively compete for market share and market new services in
markets newly opened by deregulation in that industry. Similarly, the more
recent deregulation of the U.S. gas and electric utilities industries presents
opportunities for companies in those industries to market their products
directly to consumers who, historically, have had no choices among gas and
electric service providers. The Company believes that, with its ability to
provide integrated targeted marketing solutions, it is well positioned to
service the needs of firms that, as a result of deregulation, need rapidly
implemented, sophisticated marketing capability. The Company believes that it is
not only well positioned to take advantage of the current deregulatory climate,
but that it is also capable of responding to and benefiting from changing
regulatory conditions. For example, the Company believes that the increased pace
at which pharmaceuticals are approved will increase the number of products
available to physicians and thereby increase the demand for the Company's
pharmaceutical detailing services.
Increased Demand for Direct Marketing Services in the United Kingdom and
Continental Europe. Direct marketing activities are not as prevalent in the
United Kingdom and continental Europe as they are in the United States. The
Company believes that there will be strong growth in the demand for direct
marketing services in both the United Kingdom and continental Europe during the
next few years. The Company believes that its existing United Kingdom
infrastructure and capabilities and its expansion into continental Europe during
1998 along with the Company's direct marketing experience will enable the
Company to capitalize on this demand.
Meeting Client Needs
The Company helps its clients respond to the demands of a global marketplace by
providing its clients with global marketing solutions, integrated Web and e-
commerce capabilities, and the capability to reach strategic consumer groups,
including aging baby-boomers, multicultural populations and young consumers.
Globalization. The vast majority of the Company's significant clients are
companies that have international operations. The Company believes that these
and other multinational companies will seek to do business with companies that
can provide sales and marketing solutions that span national boundaries. The
Company believes that it currently has the scope and scale of services needed to
effectively provide sales and marketing solutions to multinational clients.
Integrated Interactive Capabilities. The Company views the Web as an
increasingly important component of marketing solutions. The Web is a channel
of distribution that provides substantial marketing connectivity between clients
and their customers. The Company has the capability to fully support its
clients when creating glossy front-end Internet Web sites and can provide state-
of-the-art e-commerce technologies and back-end systems to fully integrate the
Web into its clients' businesses. The Company believes that its strong Internet
technology credentials are valuable to its clients.
Access to Strategic Consumer Groups. Through internal expansion and strategic
acquisitions, the Company has obtained the capability to give its clients
targeted access to consumer groups that the Company believes
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will be increasingly important to its clients, including: aging baby boomers,
multinational populations and young consumers. As the baby boomers age and
experience increased health problems, the Company provides pharmaceutical
manufacturers with access to each point in the continuance of patient care, from
hospitals, to physicians, to pharmacists, to the patients themselves. The
Company reaches the rapidly growing multicultural populations through bilingual
teleservices and field sales representatives and through targeted product
sampling, proprietary publications and WallBoard(R) information displays
specifically designed to address the needs of multicultural populations. The
Company believes that today's youth are highly disciminating consumers who
are making increasingly independent purchasing decisions, and the integration of
the Company's data with its direct response and targeted sampling programs
creates a broad offering of Company believes that today's youth-oriented
marketing services. The Company has the infrastructure and the resources to
continue to develop and improve marketing data with respect to these valued
population sectors.
Services
The Company's marketing programs utilize the resources of one or more of the
Company's three operating groups, depending on the client's needs. The Company's
three operating groups are: Direct Services, Healthcare Services and Creative
Services.
DIRECT SERVICES. The Direct Services group provides a broad range of services
and full-scale direct marketing and sales solutions. The Company strives to be
the direct marketing agency of record for its clients, and it focuses on the
communication points where clients and their customers come into direct contact
with each other. The following services are offered within the Direct Services
group: strategic planning and consulting, data warehousing and modeling,
database management and mailings, interactive services, teleservices, face-to-
face and field marketing, targeted product sampling, WallBoard information
displays and return-on-investment evaluation.
Strategic Planning and Consulting. The Company's goal in strategic planning is
to become a partner in the direct marketing and customer development process of
its clients. Strategic planning includes creating strategic marketing plans,
analyzing market information, defining target audiences, planning and purchasing
media campaigns, and managing marketing campaigns. Consulting works with the
client to develop the ideas and content to execute the client's marketing
campaign. The Company assists clients with assessing their business, profit and
sales objectives, defining their target markets and developing marketing plans
to achieve those objectives. Then the Company designs, produces and executes the
direct marketing campaigns.
Data Warehousing and Modeling. Data warehousing involves pulling data from
disparate client marketing files and commercially available consumer lists into
an integrated database that can be utilized in predicting customer responses.
Data modeling enables the Company to predict the results of a direct marketing
product or service offering and enables clients to quantify and measure the
return on their marketing investment. A combination of proprietary statistical
models is used to predict response and profitability profiles of customers. One
such predictive model is the Cultivation Opportunity Index ("COI") which
is a matrix scoring model using proprietary, multi-variant algorithms to
determine life-time customer value and net present value of any given product to
a specific prospect. The COI modeling process assists in predicting the
longevity and profitability of a customer relationship by determining the
likelihood and time of a customer's attrition or defection. As an enhancement
to an individual's credit score, which identifies credit-worthiness, the COI
model predicts a prospect's willingness and likelihood to respond to a specific
offer. This modeling is used to craft client marketing budgets in order to
maximize profitability and identify the point of diminishing returns on
marketing to certain customers.
The Company has compiled demographic marketing databases of more than 48 million
individuals and two million small businesses in the United States. Lists from
these databases are sold to list brokers, advertising agencies and end-users
employing direct mail and telemarketing advertising campaigns. The lists
consist primarily of high school students, college students, pre-school through
junior high school students, young adults or religiously and ethnically distinct
individuals
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Database Management and Mailings. The database management unit in the United
Kingdom builds and runs customer information systems, databases and direct
marketing systems for the Company's clients on dedicated computer hardware
housed in its facilities. These databases have been used to support the
Company's U.K. marketing efforts and to deliver direct mail pieces to targeted
markets. The Company assumes responsibility for the editorial content and
graphic design of the direct mail pieces, arranges for the mailings to be
printed, executes the direct mail campaign and handles inbound responses to the
mailings through its teleservices facilities. The responses to the database
mailings are input into the Company's demographic marketing database and provide
leads for field sales and teleservices representatives. In the United States,
the Company's production managers maintain relationships with many specialized
vendors with whom they contract for printing, computer personalization and
mailing services. In 1998, the Company managed the design, production and
mailing of more than 543 million direct marketing pieces with more than 2.4
billion individual components.
Interactive Services. The interactive services unit designs and builds Web
sites which capture all potential sales and marketing activities of a business;
which contain a predefined variety of consumer behaviors and segmentation
developed through years of direct marketing experience; and which provide
customized content based on consumer preferences in real-time. The Web-based
experience of clients' customers can be customized based on their known
behaviors and preferences as consumers. Through its interactive services, the
Company has the capability to fully support both the front-end Internet Web
sites and the back-end e-commerce systems. With its interactive services, the
Company can integrate all major aspects of a marketing campaign, from order
processing and personal fulfillment on demand to customer service.
Teleservices. Inbound teleservices may be utilized by clients for both customer
assistance and order acceptance, and outbound teleservices are generally used
for customer acquisition. The outbound teleservices associates generally use an
internally prepared sales script to market a client's products or services. Many
of the Company's U.S. teleservices associates are bilingual. The Company's call
centers are located in the United States, the United Kingdom and Belgium. Many
of the Company's call centers use a computerized call management system that
employs state-of-the-art call routing and predictive dialing technologies.
Face-to-Face and Field Marketing. Using field sales (face-to-face) and event
marketing, the Company's field sales representatives make face-to-face contact
with potential customers at the customers' offices or homes and at local
cultural events. Field sales representatives who are targeting consumer
residential customers focus their sales efforts on event marketing, mainly at
fairs, festivals and shopping malls. Field sales representatives who are
targeting business customers typically call on small businesses either on a
"cold call" basis or, increasingly, from leads generated by the Company's direct
mail or database marketing efforts. The Company also provides field marketing
services which include reporting and data analysis, distribution and in-store
merchandising.
Targeted Product Sampling. Through product sampling, the Company distributes
products and information to targeted customers at a time when they are generally
most interested in trying new products. Sample packs are given away for free in
areas where targeted customers can be reached, such as schools, fitness centers,
college dormitories, child-care centers, the offices of specialty health-care
providers and hospital maternity wards. Participating locations sign a two- or
three-year exclusivity agreement stating that the pack will be the only sampling
program allowed at the location during that time. To enhance the value of
sample packs to recipients, as well as to provide an additional source of
revenue to the Company and an additional means of collecting data, the Company
also includes proprietary literature in its sample packs. The proprietary
literature contains information, coupons and advertisements relevant to the
targeted consumer market.
WallBoard(R) Information Displays. WallBoards(R) are framed information and
sponsor displays that are mounted on a wall. WallBoards(R) present educational,
editorial and product information targeted to specific user groups. They are
located in areas where the targeted customers are likely to be waiting for a
service, such as the offices of specialty health-care providers, child-care
centers and corporate airport
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terminals. Most of the Company's WallBoards are strategically located to provide
information to targeted consumers at a time when the customers are likely to be
interested in receiving information and trying new products. Each WallBoard
location is available only to the Company under a two-or three-year exclusive
agreement, with automatic renewal provisions. WallBoard locations provide the
WallBoard free of charge because of its perceived benefit to the targeted
audience. Each of the WallBoard sponsors has "category exclusivity" for their
product in their program.
Return-on-Investment Evaluation. In addition to creating and executing strategic
marketing plans for its clients, the Company also analyzes market information
and defines the clients' target audiences in order to provide an ongoing
evaluation to the client of the performance of the marketing campaign in
achieving its goals. The Company recognizes that its clients' marketing needs
are dynamic, and through the analysis of the effectiveness of the marketing
plan, the Company strives to provide its clients with a real-time evaluation of
the clients' return-on-investment in the Company's services.
The Company's contracts with its most significant Direct Services clients are
multi-year contracts, with certain early termination rights. The Company's
principal contracts in the Direct Services group limit the ability of the
Company to, or prevent the Company from, working for the clients' competitors
during the term of the contract and, in some cases, for a defined period after
termination.
HEALTHCARE SERVICES. The Healthcare Services group provides healthcare sales,
market research and strategic planning and educational communications services
to pharmaceutical and medical device manufacturers.
Healthcare Sales. The Healthcare Services group uses field sales to obtain
customers for the Company's pharmaceutical clients through a process known as
"detailing." Pharmaceutical detailing entails a presentation to a physician by
an account executive during which the features and benefits of a drug are
discussed and product literature and samples are provided to the physician. The
Company focuses its direct detailing and selling on physicians, pharmacists and
long-term care facilities. The Healthcare Services group uses the services of
approximately 4,800 account executives and managers located throughout the
United States, the United Kingdom and continental Europe, who operate both as
independent contractors and as full- and part-time employees. The Company seeks
to hire individuals with medical or scientific backgrounds as its account
executives. More specifically, most of the account executives have experience in
sales of pharmaceutical products. In addition, each account executive undergoes
specialized training before providing detailing services on behalf of clients in
order to familiarize himself or herself with the products being detailed. The
Company's pharmaceutical detailing contracts range from six months to three
years in duration. Generally, each healthcare sales client contract provides for
the detailing of between one and three pharmaceutical products. The Company's
compensation for these services is based upon the number of account executives
in the field, the number of physicians contacted or the level of product sales
experienced by the client. The Company also provides training for pharmaceutical
sales forces. This training capability gives the Company the opportunity to
enhance the capabilities of its own pharmaceutical detailing representatives and
to provide services to companies with in-house sales staffs that would otherwise
not require the Company's services.
Market Research and Strategic Planning. In addition to pharmaceutical detailing
services, the Healthcare Services group provides strategic and tactical sales
force market planning and evaluation services, including sales marketing
resource allocation, sales force planning and the integration and evaluation of
sales and marketing promotions, to more than 100 pharmaceutical and medical
device manufacturers. The Company developed and uses for its clients its
proprietary Promotion Real-time Operating Models (PROMSM) as an analytical
system which aims to provide a comprehensive understanding of the sales dynamics
of an individual pharmaceutical product or medical device. PROMSM consists of a
family of statistical and mathematical models which relate a product's sales to
a structure of all market factors, their respective dynamics and interactions.
The relationship is then analyzed individually for each doctor using the product
class.
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Educational Communications. The Company also provides educational content for
marketing programs that target doctors, nurses, pharmacists and other healthcare
professionals. The Company works with an extensive network of medical
authorities to develop the content and then delivers marketing and educational
messages through a variety of live, print and electronic media, including
advisory panels, teleconferences, satellite training, custom monographs,
photographic case study books, color atlases, interactive CD-Roms, audio and
video tapes. These programs are generally sponsored by major pharmaceutical
companies, and some of the educational programs are accredited by the
Accreditation Council for Continuing Medical Education and the American Council
on Pharmacy Education. The Company also hosts proprietary medical seminars in
the U.S. and continental Europe which are attended by physicians and led by
experts in their respective medical fields. Attendees are typically granted
continuing medical education credit for their participation. These events are
funded through grants provided by major pharmaceutical manufacturers.
CREATIVE SERVICES. The Creative Services group focuses on creating customized,
results-oriented advertising and improving brand positions. The activities
within Creative Services are divided among market research, brand positioning
and advertising.
Market Research. Consumer research and brand development focus groups are
conducted to determine how to achieve or maintain a high profile position in the
market place for the client's brand. Market research focuses on what
distinguishes the brand from its competition, what images and feelings the brand
conjures up in the minds of consumers and what makes the brand important in the
minds of consumers. The client's brand is tested on existing and prospective
customers prior to developing a full creative campaign.
Brand Positioning. The Creative Services group utilizes its own strategic and
creative philosophy called Brand Essence to identify and sell the rational
attributes of a brand in an emotional way that connects with today's consumers.
The two components underlying Brand Essence are the rational, which communicates
what the brand stands for that makes it unique and the emotional, which
communicates how the brand looks and feels at its very best. Brand Essence
enables the Company to find powerful solutions for its clients in a highly
efficient manner. The Company believes this is essential to increasing
purchasing frequency of the brand and creating loyal customers.
Advertising. An integrated marketing campaign is developed that weaves a
uniform, appropriate and hard-selling message, while also building brand image
and appeal, throughout television, radio, print, collateral, interactive and
sales promotion. The advertising unit creates a consistent communications
program across the various marketing media. Banner ads and splash pages on the
Web, television commercials, radio messages, printed materials and promotions
are among the creative work developed by the advertising unit. Marketing
campaigns developed by the advertising unit have been recognized by the
advertising community through numerous awards for creative excellence.
Competition
The industry in which the Company operates is very competitive and highly
fragmented. The Company competes with other marketing services firms. Many of
the other firms offer a limited number of services within a limited geographic
area, but there are several participants whose businesses tend to be national or
international and offer a broad array of marketing services. The competitors
include, listed alphabetically, Abacus Direct, Acxiom, Interpublic Group of
Companies, Ogilvy & Mather Direct, Omnicom Group, Quintiles Transnational, WWAV
Rapp Collins and Wunderman Cato Johnson. The Company believes that certain
competitors may have capabilities and resources comparable to and in certain
respects greater than those of the Company. The Company also competes with the
internal marketing capabilities of its clients and potential clients. In
addition, many of the Company's initial sources for names in its databases could
also be available to a competitor wishing to develop a data delivery business.
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The Company believes that it competes primarily on the basis of its ability to
provide clients with integrated marketing solutions for their sales and
marketing needs; its proprietary databases and programs; its creative and
consulting expertise; its demonstrated ability to attract customers; its
reputation for quality; price; its geographic presence with regard to field
sales, information displays and sample packs; and its technological expertise.
Seasonality
Various aspects of the Company's business are subject to seasonal variation.
However, the Company believes that the seasonality of the various aspects of its
business are not coincident, such that on an aggregate basis the Company's
business is not subject to significant seasonal variation.
Regulation
Several of the industries in which the Company's clients operate are subject to
varying degrees of governmental regulation, particularly the pharmaceutical,
healthcare and telecommunications industries. Generally, compliance with these
regulations is the responsibility of the Company's clients. However, the Company
could be subject to a variety of enforcement or private actions for its failure
or the failure of its clients to comply with such regulations.
In connection with the handling and distribution of samples of pharmaceutical
products, the Healthcare Services group is subject to regulation by its clients,
the Prescription Drug Marketing Act of 1987 and other applicable federal, state
and local laws and regulations in the United States and certain regulations of
the United Kingdom, France and the European Union. Pharmaceutical manufacturers
and the health care industry in general are subject to significant U.S. federal
and state, U.K., French and European Union regulation. In particular,
regulations affecting the pricing or marketing of pharmaceuticals could make it
uneconomic or infeasible for pharmaceutical companies to market their products
through medical marketing detailers. Other changes in the domestic and
international regulation of the pharmaceutical industry could also have a
material adverse effect on the Healthcare Services group.
The Company's physician education services are also subject to a variety of
federal and state regulations relating to both the education of medical
professionals and sales of pharmaceuticals. Any changes in such regulations or
their application could have a material adverse effect on the Healthcare
Services group.
From time to time state and federal legislation is proposed with regard to the
use of proprietary databases of consumer and health groups. The uncertainty of
the regulatory environment is increased by the fact that the Company generates
and receives data from many sources. As a result, there are many ways both
domestic and foreign governments might attempt to regulate the Company's use of
its data. Any such restriction could have a material adverse effect on the
Direct Services group.
The Direct Services group is also subject to a large number of federal and state
regulations. The Federal Communications Commission (the "FCC") rules under the
Federal Telephone Consumer Protection Act of 1991 limit the hours during which
telemarketers may call consumers and prohibit the use of automated telephone
dialing equipment to call certain telephone numbers. The Federal Telemarketing
and Consumer Fraud and Abuse Protection Act of 1994 broadly authorizes the
Federal Trade Commission to issue regulations prohibiting misrepresentation in
telephone sales.
One of the significant regulations of the FCC applicable to long distance
carriers, including the Company's telecommunication clients, prohibits the
unauthorized switching of subscribers' long distance carriers. A fine of up to
$100,000 may be imposed by the FCC for each instance of unauthorized switching.
In order to prevent unauthorized switches, federal law requires that switches
authorized over the telephone, such as through the Company's teleservices, be
verified contemporaneously by a third party. Third-party verification generally
is not required for switches obtained in person, such as those obtained by
members of the Company's Communications Services field sales force. The
Company's training and other procedures are designed to prevent unauthorized
switching. However, as with any field sales force, the Company
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cannot completely ensure that each employee will always follow the Company's
mandated procedures. Accordingly, it is possible that employees may in some
instances engage in unauthorized activities, including unauthorized switching.
To the Company's knowledge, no formal FCC complaint has been brought against the
Company or any of its clients as a result of the Company's services. If any
complaints were brought, the Company's clients might assert that such complaints
constituted a breach of its agreement with the Company and, if material, seek to
terminate the contract. Legislation currently pending in Congress would increase
penalties against carriers that engage in unauthorized switching of subscribers'
long distance carriers and would impose additional procedural safeguards to
ensure against such unauthorized switches. If such proposed legislation is
enacted, compliance with the additional procedural safeguards could result in
increased costs associated with the Direct Services group's marketing efforts on
behalf of its telecommunications clients.
The services offered by the Company outside the United States may be subject to
certain regulations of the United Kingdom, France and the European Union,
including regulations relating to inbound and outbound teleservices, advertising
content, promotions of financial products, activities requiring customers to
send money with mail orders and the maintenance and use of customer data held in
databases. In addition, the Company operates a small U.K. printing facility
which is subject to certain environmental regulations regarding the storage and
disposal of certain chemicals involved in the printing process. The Company
believes that its operations outside the United States are substantially in
compliance with applicable regulations. There can be no assurance, however, that
additional U.K., French or European Union legislation, or changes in the
regulatory implementation, would not limit the Company's international
activities or significantly increase the cost of regulatory compliance.
Employees
As of March 31, 1999, the Company used the services of approximately 9,400
employees. The Company believes that its relations with its employees are
satisfactory.
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Item 2. Properties
The Company's corporate headquarters are located in Bethesda, Maryland in leased
facilities. The Company also leases facilities for the Direct Services Group in
Bethesda, MD, Wilton, CT, Danbury, CT, Mineola, NY, Chicago, IL, Glenview, IL,
San Francisco, CA, Smyrna, GA and Bristol, England. The Company owns office
space in Glen Allen, VA, Cirencester, England and Diss, England which is
utilized by the Direct Services Group. The Company leases facilities for the
Healthcare Services group in Somerset, NJ, Whitehouse, NJ, Stamford, CT,
Basingstoke, England, Winchester, England and Neuilly-sur-Seine, France. The
Company owns office space in Lenggries, Germany which is occupied by the
Healthcare Services Group. Additionally, the Company leases office space in
Boston, MA and London, England for the Creative Services Group. The operating
groups also lease other less significant space throughout the U.S., the U.K.,
and Belgium which is primarily utilized as sales offices.
The Company believes that its current facilities are adequate for its current
operations.
Item 3. Legal Proceedings
From time to time, the Company is involved in litigation incidental to its
business. In the opinion of the Company, no pending or threatened litigation of
which the Company is aware has had or is expected to have a material adverse
effect on the Company's results of operations, financial condition or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the quarter ended
December 31, 1998.
9
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock trades on the New York Stock Exchange ("NYSE") under
the symbol SNC. The following table sets forth, for the periods indicated, the
high and low closing sales prices per share as reported on the NYSE.
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
1998
First Quarter 47 1/4 32 9/16
Second Quarter 53 5/8 37 7/8
Third Quarter 49 1/2 30 1/8
Fourth Quarter 37 9/16 28 3/8
High Low
------- -------
1997
First Quarter 32 1/2 23 1/2
Second Quarter 28 20 5/8
Third Quarter 31 1/16 24
Fourth Quarter 37 1/4 28
</TABLE>
The closing sales price for the Company's common stock on March 10, 1999 was
$29.75, and there were approximately 8,500 beneficial owners of the Company's
common stock as of that date.
The Company currently intends to retain future earnings to finance its growth
and development and therefore, does not anticipate paying any cash dividends in
the foreseeable future. Payment of any future dividends will depend upon the
future earnings and capital requirements of the Company and other factors which
the Board of Directors considers appropriate.
In October, November and December 1998, the Company issued 1,565,167, 1,564,611
and 944,555 shares of its common stock in connection with the acquisitions of
privately held companies. All of the entities acquired became wholly owned
subsidiaries of the Company. The shares were restricted and contained a legend
against transfer. The issuance of the shares was effected without registration
in reliance upon the exemption available under Section 4(2) of the Securities
Act.
Item 6. Selected Financial Data
The following table sets forth selected financial data as of and for each of the
years in the five-year period ended December 31, 1998 after giving effect to all
transactions accounted for as poolings of interests (the "mergers"). The table
below gives effect to all of the mergers as if they had occurred on January 1 of
each period presented. The table also sets forth unaudited pro forma income
statement data for each of the five years ended December 31, 1998, which gives
pro forma effect to federal and state income taxes as if all operations of the
Company were subject to such taxes for all periods presented. The historical
income statement data for each of the three years ended December 31, 1998 and
the balance sheet data as of December 31, 1997 and 1998 are derived from the
audited Consolidated Financial Statements of the Company. All other income
statement and balance sheet data are derived from unaudited Consolidated
Financial Statements of the Company and in the opinion of Management include all
adjustments, consisting of normal and recurring adjustments, which are necessary
to present fairly the results of operations and financial position of the
Company for each period presented. The following selected financial data should
be read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Consolidated Financial Statements
and notes thereto included elsewhere in this Form 10-K.
10
<PAGE>
<TABLE>
<CAPTION>
Snyder Communications
Selected Financial Data
(In 000's) For the Years Ended December 31,
1998 1997 1996 1995 1994
======== ======== ======== ======== ========
Income Statement Data: (1) (unaudited) (unaudited)
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net Revenues $815,303 $612,039 $493,927 $406,789 $287,699
======== ======== ======== ======== ========
Income (loss) from continuing operations $ 22,806 $(25,354) $ 15,564 $ 26,355 $ 12,447
======== ======== ======== ======== ========
Diluted income (loss) from continuing operations per share $ 0.32 $ (0.40) $ 0.26 $ 0.45 $ 0.22
======== ======== ======== ======== ========
Net income (loss) (2) (3) $ 22,806 $(26,861) $ 12,850 $ 26,355 $ 12,447
======== ======== ======== ======== ========
Diluted net income (loss) per share $ 0.32 $ (0.42) $ 0.21 $ 0.45 $ 0.22
======== ======== ======== ======== ========
Shares used in computing diluted per share amounts (4) 72,012 63,752 59,992 58,903 56,243
======== ======== ======== ======== ========
Unaudited:
Pro forma net income from continuing operations,
excluding non-recurring items (5) 73,349 31,036 25,194 28,706 16,154
======== ======== ======== ======== ========
Pro forma diluted net income per share from
continuing operations, excluding non-recurring items $ 1.02 $ 0.47 $ 0.42 $ 0.49 $ 0.29
======== ======== ======== ======== ========
Shares used in computing pro forma diluted
per share amounts (4) 72,012 65,560 59,992 58,903 56,243
======== ======== ======== ======== ========
Balance Sheet Data: (1)
Total Assets $695,660 $452,346 $319,630 $238,959 $177,485
======== ======== ======== ======== ========
Long-term debt (6) $ 13,763 $ 13,324 $ 38,662 $ 38,479 $ 30,868
======== ======== ======== ======== ========
Redeemable ESOP stock (7) $ 2,960 $ 5,278 $ 2,452 $ 269 $ -
======== ======== ======== ======== ========
Total Equity $357,378 $118,261 $ 67,123 $ 36,052 $ 22,851
======== ======== ======== ======== ========
</TABLE>
See footnotes on following page.
11
<PAGE>
(1) Prior to the consummation on September 24, 1996 of the reorganization (the
"Reorganization") in which the Company acquired all of the limited
partnership interests in Snyder Communications, L.P. (the "Partnership") and
all of the issued and outstanding stock of the corporate general partner,
Snyder Marketing Services, Inc. ("SMS"), the operations of the Company were
conducted through the Partnership. The Partnership was owned 63.85% by SMS
and 36.15% by the limited partners. The Reorganization resulted in the
stockholders of SMS exchanging 100% of their SMS stock for the Company's
Common Stock simultaneously with the limited partners exchanging their
limited partner interests in the Partnership for the Company's Common Stock.
After the Reorganization, the Company owned 100% of the stock of SMS and,
directly and indirectly through its ownership of SMS, 100% of the interest
of the Partnership. Because of the continuity of ownership, the
Reorganization was accounted for by combining the assets, liabilities, and
operations of SMS, the Partnership and the Company at their historical cost
basis. Accordingly, for the periods prior to the Reorganization, the income
statement and balance sheet data include a combination of the accounts of
SMS and the Partnership. Prior to its acquisition by the Company, American
List Corporation ("American List") had a fiscal year that ended in February.
The accompanying balance sheet data as of December 31, 1996, 1995 and 1994
reflect the combination of American List's accounts as of the following
February month-end while the income statement data for each of the three
years ended December 31, 1996 reflect the combination of American List's
operations for the twelve months that end in the February following the
respective income statement date.
(2) Net income (loss) for the years ended December 31, 1997 and 1996 includes
the loss from discontinued operations of Bob Woolf Associates, Inc., which
was spun off to stockholders of record of one of the Company's 1998
acquisitions on October 31, 1997. The loss from discontinued operations
represents $0.02 and $0.03 per diluted share for 1997 and 1996,
respectively.
(3) Net income for the year ended December 31, 1996 includes an extraordinary
item of $1.2 million ($0.02 per diluted share) that was recorded in
conjunction with the early redemption of subordinated debentures which were
due to related parties. The extraordinary item is net of a $0.8 million tax
benefit and consists of prepayment penalties and the write-off of
unamortized discount and debt issuance costs.
(4) The shares used in computing the per share amounts assume that the
Reorganization and the pooling of interests transactions completed during
1998 and 1997 had occurred at the beginning of each of the periods presented
and reflect the issuance of additional shares as a result of the Company's
public offerings, the impact of stock options, and certain share
repurchases.
(5) Pro forma net income from continuing operations, excluding non-recurring
items represents income from continuing operations adjusted to reflect a
provision for income taxes as if the Company had been taxed similarly to a C
corporation for all periods presented and the elimination of compensation to
stockholders, ESOP expense, recapitalization costs and acquisition and
related costs. Compensation to stockholders, ESOP expense, recapitalization
costs and acquisition and related costs are considered to be nonrecurring by
the Company, because the Company's current operations will not result in any
compensation to stockholders, ESOP expense, recapitalization costs or
acquisition and related costs in future periods.
(6) Includes mandatorily redeemable preferred stock of $8.5 million, $4.6
million and $4.6 million at December 31, 1996, 1995 and 1994, respectively.
The preferred stock did not carry voting rights unless dividends were in
arrears, which did not occur, and was not convertible into common stock.
Accordingly, the preferred stock was classified as long-term debt. This
preferred stock was redeemed during 1997.
12
<PAGE>
(7) Represents the balance necessary to satisfy the repurchase obligation
associated with the Company's shares held by the ESOP of an acquired company
which have been allocated to former employees of the acquired company whose
employment had terminated prior to its merger with the Company.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company was incorporated in June 1996 in Delaware to continue the business
operations of Snyder Communications, L.P. (the "Partnership"), a limited
partnership established in 1988, in which Snyder Marketing Services, Inc.
("SMS") was the general partner and USN College Marketing, L.P. ("USN") and
certain other investors were limited partners. As part of a reorganization (the
"Reorganization") effected in connection with the Company's initial public
offering in September 1996, all of the limited partnership interests in the
Partnership, as well as all shares of stock in SMS, were exchanged for shares of
the Company's common stock.
The following discussion of the Company's results of operations and of its
liquidity and capital resources is based upon the Company's Consolidated
Financial Statements. The entities with which the Company has entered into
mergers accounted for as poolings of interests for financial reporting purposes
will be collectively referred to as the "Pooled Entities," and their mergers
will be referred to herein as the "Acquisitions". The consolidated financial
statements have been retroactively restated to reflect the combined financial
position and the combined results of operations and cash flows of the Pooled
Entities for all periods presented, giving effect to the Acquisitions as if they
had occurred at the beginning of the earliest period presented. The following
discussion should be read in conjunction with the Selected Financial Data of the
Company and the Consolidated Financial Statements of the Company and related
notes thereto included elsewhere in this Form 10-K.
Overview
Since completing its initial public offering in September 1996, the Company has
significantly expanded the range of marketing and sales services it is able to
offer its clients. This expansion has been accomplished by building and
initiating new programs or service offerings and by acquiring businesses that
offer complementary services. The Company's strategy is to facilitate the
growth of its acquirees with improved sales and marketing resources and to
integrate the sales and marketing efforts of its acquirees with those of the
existing operating groups within the Company. The Company expects that the
synergies created by its acquisitions will increase its opportunities and
strengthen its client relationships. The Company strives to integrate its
service capabilities within as well as across its three operating groups to
provide sales and marketing solutions for its clients. The service offerings of
acquired companies have been combined with those previously offered by the
Company to create three operating groups: Direct Services, Healthcare Services
and Creative Services. Direct services are marketing and sales initiatives
designed to directly reach certain, sometimes targeted, consumer and business
groups. Healthcare services are designed to establish and monitor strategic
marketing plans, to provide face-to-face interaction with physicians, and to
conduct educational research and communication services. Creative services are
designed to create the right kind of advertising for clients. Throughout 1998
and 1997, the Company completed acquisitions accounted for as both poolings of
interests and as purchases. Those acquisitions that are either significant to
the Company's financial results or that may provide significant future growth
opportunities are discussed below.
The completion of strategic acquisitions increased the scope of services and the
geographic presence of the Direct Services group. During 1998 and 1997, the
Company issued 5,655,730 and 10,414,885 shares, respectively, in pooling of
interests transactions with companies that provide direct services. These
transactions include the acquisitions of Brann Holdings Limited ("Brann"), Blau
Marketing Technologies, Inc. ("Blau"), Response Marketing Group ("RMG"), Bounty
Group Holdings Limited ("Bounty"), Sampling Corporation of America ("SCA"),
American List Corporation ("American List") and National Sales Services, Inc.
("NRS"). Brann is a leading provider of direct marketing solutions in the U.K.,
and offers a full range of services including planning, creating and delivering
direct response marketing
13
<PAGE>
communications; marketing systems design and consultancy; print production
services; and telephone and data management services to companies involved in
direct marketing and selling. Blau is a leading provider of marketing
communications services in the U.S., and it provides direct marketing services,
including strategic consulting and design, program creation and implementation,
consumer database management, response tracking and analysis and production
management to large national and international corporations in the financial
services, technology, retail, telecommunications and utilities industries. RMG
is a leading provider of interactive, knowledge-based marketing solutions in the
U.S., and it provides database and analytical services, strategic consulting and
design and marketing campaign management using a broad array of direct-to-
customer delivery channels designed to maximize the effectiveness and
profitability of marketing campaigns. Brann, Blau and RMG all provide a broad
range of services and full-scale direct marketing and sales solutions. The
services offered by Bounty, SCA, American List and NRS are more focused and
consist primarily of product sampling at Bounty and SCA, data mining at American
List and field marketing at NRS. Bounty is a U.K.-based provider of targeted
product sampling services and proprietary health-oriented publications to
expectant mothers, new mothers and parents of toddlers in the U.K. and Ireland.
SCA is a U.S. provider of targeted product sampling programs for packaged goods
manufacturers with distribution channels that include primary and secondary
schools, daycare/preschool centers, colleges and immigrant organizations.
American List develops, maintains and markets some of the largest and most
comprehensive databases of high school, college and pre-school through junior
high school students in the U.S. NRS provides marketing and merchandising
services for its clients throughout the U.S., and its services include reporting
and data analysis, consulting, distribution and in-store merchandising.
The Company created its Healthcare Services group in January 1997 in a merger
transaction with a U.S. provider of pharmaceutical sales and marketing services.
During 1998 and 1997, the Company issued 7,340,236 and 4,035,184 shares,
respectively, in pooling of interests transactions with companies that provide
healthcare services. These transactions include the acquisitions of MMD, Inc.
("MMD"), GEM Communications, Inc. ("GEM"), Rapid Deployment Group Limited
("RDL"), PharmFlex, Inc. ("PharmFlex"), Health Products Research, Inc. ("HPR"),
Publimed Promotions, S.A. ("Publimed"), Clinical Communications Group, Inc.
("Clinical") and MKM Marketinginstitut GmbH ("MKM"). The Company acquired
Halliday Jones Sales Ltd. ("HJ") for approximately $19.4 million of cash and
common stock in a purchase transaction in 1997, as well as Healthcare
Promotions, LLC ("HCP") for approximately $22.7 million of common stock and CLI
Pharma S.A. ("CLI Pharma") for approximately $25.3 million of common stock in
purchase transactions in the first quarter of 1998. MMD, RDL, HJ, PharmFlex,
HCP, Publimed, CLI Pharma and MKM all market medical products for pharmaceutical
companies utilizing technically trained sales representatives. MMD, PharmFlex
and HCP all operated throughout the U.S., and their operations have been
combined into Snyder Healthcare Sales U.S. Snyder Healthcare Sales U.S.
offers the services of over 2,600 account executives and managers in the U.S.
and provides outsourced pharmaceutical sales and marketing services to some of
the world's premier pharmaceutical companies. HJ and RDL both operated
primarily in the U.K., and RDL also operated in Hungary. HJ and RDL have been
combined into Snyder Healthcare Services U.K. Snyder Healthcare Services U.K.
retains the services of over 600 account executives and managers and provides
outsourced pharmaceutical sales and marketing services to many leading
pharmaceutical manufacturers. Publimed and CLI Pharma both operated in France,
and their operations have been combined into Snyder Healthcare Services France.
Snyder Healthcare Services France utilizes over 1,100 account executives and
managers to provide pharmaceutical sales and marketing services in France. MKM
provides outsourced pharmaceutical sales and marketing services in Germany with
a network of 300 technically trained sales representatives. GEM and Clinical
both operated primarily in the U.S., and their operations have been combined
into Snyder Healthcare Communications. Snyder Healthcare Communications
provides a complete range of healthcare educational services with specialties in
educational research, marketing and publishing for the pharmaceutical industry.
HPR provides strategic and tactical sales force market planning and evaluation
services, including sales marketing resource allocation, sales force planning
and the integration and evaluation of sales and marketing promotions to many
leading pharmaceutical and medical device manufacturers.
The creative services offered by the Company were established with its March
1998 acquisition of Arnold
14
<PAGE>
Communications, Inc. ("Arnold") and were further expanded with the acquisition
of BDDH Group Plc ("BDDH"). The Company issued 3,572,497 shares in the pooling
of interests transactions with Arnold and BDDH. Arnold operates primarily in the
U.S. and is a full-service marketing communications firm that provides creative
services, new media marketing, interactive services, database management
services and full-service public relations to a roster of recognized national
and international corporations. BDDH operates primarily in the U.K. and is a
full-service advertising agency that provides creative services and new media
marketing.
Results of Operations
In the Direct Services group, net revenues are recognized when services are
completed in accordance with the terms of the contracts. On certain contracts,
revenues from field sales and teleservices are based on both the number of
accepted customers and the type of services sold. The Company typically
receives a fixed dollar amount per customer. Revenues related to such sales are
recognized on the date that the application for service is accepted by the
Company's clients. For WallBoard information displays and product sampling
within the Direct Services group, the Company is paid by the sponsors in
installments, generally quarterly or semiannually, over the term of the contract
under which services are rendered, which is generally one year or less.
Revenues are recognized upon shipment of lists from the Direct Services group to
customers for a one-time usage. In the Healthcare Services group, revenues and
associated costs on pharmaceutical detailing contracts are recognized when
services have been performed by account executives. For educational marketing
programs within the Healthcare Services group, the Company recognizes revenues
and associated costs as services are performed. In the Creative Services group,
net revenues are recognized when services are rendered in accordance with the
terms of the contracts.
Cost of services consists of all costs specifically associated with client
programs, such as salary, commissions and benefits paid to personnel, including
senior management associated with specific service groups, inventory, payments
to third-party vendors and systems and other support facilities specifically
associated with client programs.
Selling, general and administrative expenses consist primarily of costs
associated with administrative functions, such as finance, accounting and human
resources, and information technology, as well as personnel costs of senior
management not specifically associated with client services.
Compensation to stockholders consists of excess compensation paid to certain
stockholders of acquired companies prior to their respective mergers with the
Company. The amount by which the historical compensation of these stockholders
exceeds that provided in their employment contracts with the Company has been
classified as compensation to stockholders.
ESOP expense is the compensation expense recorded when shares are committed to
be released to ESOP participants. The amount of the expense is based on the
current market price of the shares and will vary based upon the amount of debt
repaid by the ESOP during the period.
Recapitalization costs were recorded by one of the Company's 1998 acquirees at
the time of its recapitalization in 1997.
Acquisition and related costs consist primarily of investment banking fees,
other professional service fees, certain tax payments and other contractual
payments resulting from the consummation of the Company's pooling of interests
transactions, as well as the costs of consolidating certain of the Company's
acquired operations.
The following sets forth, for the periods indicated, certain components of the
Company's income statement data, including such data as a percentage of
revenues. Pro forma net income includes a provision for income taxes as if all
operations of the Company had been taxed as a C corporation for all periods
presented. Pro forma net income from continuing operations, excluding
nonrecurring items represents income from continuing operations adjusted to
reflect a provision for income taxes as if the Company had
15
<PAGE>
been taxed similarly to a C corporation for all periods presented and the
elimination of compensation to stockholders, ESOP expense, recapitalization
costs and acquisition and related costs. Compensation to stockholders, ESOP
expense, recapitalization costs and acquisition and related costs are considered
to be nonrecurring by the Company, because the Company's current operations will
not result in any compensation to stockholders, ESOP expense, recapitalization
costs or acquisition and related costs in future periods.
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------------------
1998 1997 1996
--------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net Revenues $815,303 100.0% $612,039 100.0% $493,927 100.0%
Operating expenses:
Cost of services 554,057 68.0% 430,245 70.3% 341,715 69.2%
Selling, general and administrative expenses 144,361 17.7% 126,159 20.6% 103,665 21.0%
Compensation to stockholders 1,315 0.2% 28,060 4.6% 17,279 3.5%
ESOP expense - 0.0% 5,411 0.9% 6,553 1.3%
Recapitalization costs - 0.0% 1,889 0.3% - 0.0%
Acquisition and related costs 65,863 8.1% 39,430 6.4% - 0.0%
--------------------------------------------------------
Income (loss) from operations 49,707 6.1% (19,155) -3.1% 24,715 5.0%
Interest expense (4,068) -0.5% (4,795) -0.8% (6,076) -1.2%
Investment income 5,488 0.7% 3,512 0.6% 3,167 0.6%
Income tax provision (28,321) -3.5% (4,916) -0.8% (6,242) -1.3%
Loss from discontinued operations - 0.0% (1,507) -0.3% (1,498) -0.3%
Extraordinary item, less applicable income taxes of $806 - 0.0% - 0.0% (1,216) -0.2%
--------------------------------------------------------
Net income (loss) $ 22,806 2.8% $(26,861) -4.4% $ 12,850 2.6%
========================================================
Pro forma net income (loss) $ 20,145 2.5% $(30,791) -5.0% $ 6,558 1.3%
========================================================
Pro forma net income (loss) before extraordinary item and
excluding nonrecurring acquisition costs $ 73,349 9.0% $ 31,036 12.0% $ 25,194 6.3%
========================================================
</TABLE>
1998 Compared to 1997
Revenues. Revenues increased $203.3 million, or 33.2%, to $815.3 million in
1998 from $612.0 million in 1997. The increase in revenues was due primarily to
increased sales volumes in each of the Company's three operating groups, Direct
Services, Healthcare Services, and Creative Services.
Revenues in the Direct Services group increased $67.0 million, or 21.0%, to
$386.3 million in 1998 and accounted for 33% of the Company's total increase in
revenues for 1998. The services provided to both new and existing customers of
the Direct Services group increased during 1998. Services increased most to
those customers for which the Direct Services group provides full-scale direct
marketing and sales solutions.
Revenues in the Healthcare Services group increased $112.7 million, or 53.9%, to
$321.7 million in 1998 and accounted for 55% of the Company's total increase in
revenues for 1998. The Healthcare Services group experienced growth in the
services provided to both new and existing customers during 1998. This includes
revenue growth resulting from the acquisitions of HCP and CLI Pharma in purchase
transactions completed during the first quarter of 1998.
Revenues in the Creative Services group increased $23.6 million, or 28.2%, to
$107.3 million in 1998 and accounted for 12% of the Company's total increase in
revenues for 1998. Revenue growth within Creative Services was due primarily to
an increase in services provided to existing customers during 1998.
Cost of Services. Cost of services increased $123.9 million, or 28.8%, to
$554.1 million in 1998 from $430.2 million in 1997. Cost of services, as a
percentage of revenues, decreased to 68.0% in 1998 from
16
<PAGE>
70.3% in 1997. The Company's management and client support personnel were able
to support increased client services during 1998, resulting in a decrease in
cost of services as a percentage of revenues.
Cost of Services in the Direct Services group increased $40.1 million, or 19.4%,
to $246.9 million in 1998 and accounted for 32% of the Company's total increase
in cost of services for 1998. Cost of services as a percentage of revenues
decreased to 63.9% in 1998 from 64.8% in 1997. The existing client services
personnel within Direct Services were able to support its growth.
Cost of Services in the Healthcare Services group increased $79.9 million, or
51.1%, to $236.2 million in 1998 and accounted for 65% of the Company's total
increase in cost of services for 1998. Cost of services as a percentage of
revenues decreased to 73.4% in 1998 from 74.8% in 1997. This is due to the
overall growth within Healthcare Services and the ability of the client support
personnel to handle increased client services.
Cost of Services in the Creative Services group increased $3.8 million, or 5.7%,
to $70.9 million in 1998 and accounted for 3% of the Company's total increase in
cost of services for 1998. Cost of services as a percentage of revenues
decreased to 66.1% in 1998 from 80.1% in 1997. In 1997, the subsidiary which
comprises the substantial majority of Creative Services operated as an S
corporation and distributed most of its earnings through bonuses, resulting in a
higher cost of services as a percentage of revenues in 1997 than in 1998. A
change in the mix of services provided during 1998 also contributed to the
reduction in cost of services as a percentage of revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $18.2 million, or 14.4%, to $144.4 million in
1998 from $126.2 million in 1997. Selling, general and administrative expenses
as a percentage of revenues decreased to 17.7% in 1998 from 20.6% in 1997,
reflecting a moderately increased corporate overhead expense being spread over a
larger base of revenues.
Selling, general and administrative expenses in the Direct Services group
decreased $6.4 million, or 9.2%, to $62.9 million. Selling, general and
administrative expenses as a percentage of revenues decreased to 16.3% in 1998
from 21.7% in 1997 because a slightly lower overhead amount was spread over a
larger base of revenues.
Selling, general and administrative expenses in the Healthcare Services group
increased $10.2 million, or 31.1%, to $43.0 million. Selling, general and
administrative expenses as a percentage of revenues decreased to 13.4% in 1998
from 15.7% in 1997 due primarily to the revenue growth from the significant
increase in services provided throughout 1998.
17
<PAGE>
Selling, general and administrative expenses in the Creative Services group
increased $9.0 million, or 61.6%, to $23.6 million. Selling, general and
administrative expenses as a percentage of revenues increased to 22.0% in 1998
from 17.4% in 1997 due primarily to increases in personnel and office expenses.
Corporate selling, general and administrative expenses increased $5.4 million,
or 56.8%, to $14.9 million. The increase in corporate selling, general and
administrative expenses is consistent with the overall growth of the Company.
Corporate selling, general and administrative expenses as a percentage of
revenue were consistent for 1998 and 1997 at 1.8% and 1.6%, respectively.
Compensation to Stockholders. Compensation to stockholders was $1.3 million in
1998 and $28.1 million in 1997. Compensation to stockholders reflects
compensation paid to certain stockholders of acquired companies prior to their
respective mergers with the Company that is in excess of the compensation
provided for in their employment contracts with the Company. The amount by
which the historical compensation paid to these stockholders exceeds the amount
provided for in their respective employment contracts with the Company has been
classified as compensation to stockholders. No compensation to stockholders is
recorded subsequent to an acquisition by the Company. The $1.3 million recorded
in 1998 relates to certain companies acquired in the third and fourth quarters
of 1998, and therefore, was incurred during 1998 by the acquired companies prior
to their respective mergers with the Company.
ESOP Expense. No ESOP expense was incurred in 1998. All obligations of the ESOP
were settled in 1997, and $5.4 million of ESOP expense was incurred in 1997.
The employees of one of the acquired companies that previously participated in
the ESOP now participate in the Company's stock incentive plan. The Company
does not expect to incur any ESOP expense in future periods.
Recapitalization Costs. No recapitalization costs were incurred in 1998. One
of the acquired entities completed a recapitalization in August 1997 prior to
its 1998 merger with the Company, and $1.9 million of recapitalization costs
were incurred in 1997. The Company does not expect to incur any
recapitalization costs in future periods.
Acquisition Costs. The Company recorded $65.9 million in nonrecurring
acquisition and related costs during 1998. These costs are primarily related to
the consummation of 1998 Acquisitions and consist of investment banking fees,
expenses associated with the accelerated vesting of options held by employees of
certain acquired companies, other professional service fees, transfer taxes and
other contractual payments. In addition, this amount includes a charge of
approximately $13.3 million for costs necessary to consolidate and integrate
certain of the Company's operations in the U.S., the U.K. and France. The
Company is integrating acquired subsidiaries that provide similar services
within the same geographic regions. Approximately thirteen locations will be
consolidated into six, and the efforts will not have a significant impact on the
Company's workforce. The Company expects these integration activities to be
substantially complete by the third quarter of 1999. The charge consists of
$5.0 million to consolidate and terminate lease obligations, $6.9 million of
severance and other costs associated with the termination of 239 employees, and
$1.4 million of fees incurred for consulting services and other costs related to
these integration activities. Included in the terminated employees are 55
employees that elected not to relocate and will be replaced. The remaining
employees who were terminated are primarily redundant operations and
administrative personnel whose functions will be performed by others upon
completion of the integration.
The Company recorded $39.4 million in nonrecurring acquisition and related costs
during 1997 related to the consummation of the Company's 1997 Acquisitions.
These costs are discussed further in the review of the Company's results of
operations for 1997 as compared to 1996.
Interest Expense. The Company recorded $4.1 million of interest expense in 1998
and $4.8 million of interest expense in 1997. The Company does not have any
significant debt obligations outstanding. The interest expense recorded in both
1998 and 1997 consists primarily of interest on debt at acquired
18
<PAGE>
companies prior to their acquisition by the Company. The Company generally
repays the debt of its acquirees.
Investment Income. The Company recorded $5.5 million of investment income in
1998 and $3.5 million of investment income in 1997. The increase in investment
income corresponds to the increase in funds available for investment. The
Company's average cash balance was greater in 1998 than in 1997 due primarily to
public stock offerings and stock option exercises.
Income Tax Provision. The Company recorded a $28.3 million tax provision in
1998, consisting of a $45.0 million provision for the $118.3 million in income
from recurring operations plus interest, a $14.0 million benefit from the $65.9
million in nonrecurring acquisition related costs, and a $2.7 million benefit
from the S corporation status of certain entities prior to their respective
acquisitions by the Company. The Company's effective tax rate for the year
ended December 31, 1998 differs from the Federal statutory rate due primarily to
the nondeductibility of certain of the acquisition costs and state income taxes.
Pro forma net income discussed below includes a provision for income taxes as if
all operations of the Company had been taxed as a C corporation for the year
ended December 31, 1998.
The Company recorded a $4.9 million tax provision in 1997, consisting of a $23.3
million provision for the $54.4 million in income from recurring operations less
interest, a $13.9 million benefit from the $74.8 million in nonrecurring costs,
and a $4.5 million benefit from the S corporation status of certain entities
prior to their respective acquisitions by the Company. The Company's effective
tax rate for the year ended December 31, 1997 differs from the Federal statutory
rate due primarily to the nondeductibility of certain of the nonrecurring costs
and state income taxes. Pro forma net income discussed below includes a
provision for income taxes as if all operations of the Company had been taxed as
a C corporation for the year ended December 31, 1997.
Pro Forma Net Income (Loss). Pro forma net income (loss) increased $50.9
million, or 165%, to net income of $20.1 million in 1998 from a net loss of
$30.8 million in 1997, due primarily to the overall growth in revenues and
containment of costs. Revenue growth exceeded the growth in cost of services
and selling, general and administrative expenses. Pro forma net income adjusted
to exclude nonrecurring costs, consisting of compensation to stockholders, ESOP
expense, recapitalization costs and acquisition and related costs, as well as
the extraordinary item and discontinued operations increased $42.3 million, or
136%, to $73.3 million in 1998 from $31.0 million in 1997.
1997 Compared to 1996
Revenues. Revenues increased $118.1 million, or 23.9%, to $612.0 million in
1997 from $493.9 million in 1996. The increase in revenues was due primarily to
increased sales volumes in each of the Company's three operating groups, Direct
Services, Healthcare Services, and Creative Services.
Revenues in the Direct Services group increased $37.5 million, or 13.3%, to
$319.3 million in 1997 and accounted for 32% of the Company's total increase in
revenues for 1997. The services provided to both new and existing customers of
the Direct Services group increased during 1997. Services increased most to
those customers for which Direct Services provides product sampling, because
additional sampling programs were offered in 1997.
Revenues in the Healthcare Services group increased $64.3 million, or 44.4%, to
$209.0 million in 1997 and accounted for 54% of the Company's total increase in
revenues for 1997. The Healthcare Services group experienced growth in the
services provided to both new and existing customers during 1997. Services
increased most to those customers for which the Healthcare Services group
provides outsourced pharmaceutical marketing services.
Revenues in the Creative Services group increased $16.3 million, or 24.2%, to
$83.7 million in 1997 and accounted for 14% of the Company's total increase in
revenues for 1997. Revenue growth within Creative Services was due primarily to
an increase in services provided to existing customers during 1997.
19
<PAGE>
Cost of Services. Cost of services increased $88.5 million, or 25.9%, to
$430.2 million in 1997 from $341.7 million in 1996. Cost of services, as a
percentage of revenues, increased to 70.3% in 1997 from 69.2% in 1996. The
increase in cost of services is consistent with the Company's growth and the
increase in services provided.
Cost of Services in the Direct Services group increased $22.7 million, or 12.3%,
to $206.8 million in 1997 and accounted for 26% of the Company's total increase
in cost of services for 1997. Cost of services as a percentage of revenues
stayed fairly constant at 64.8% in 1997 and 65.3% in 1996.
Cost of Services in the Healthcare Services group increased $51.4 million, or
49.0%, to $156.4 million in 1997 and accounted for 58% of the Company's total
increase in cost of services for 1997. Cost of services as a percentage of
revenues increased to 74.8% in 1997 from 72.5% in 1996. An increase in cost of
services as a percentage of revenues to provide healthcare educational services
was offset by a decrease in cost of services as a percentage of revenues to
provide healthcare sales services, resulting in the overall increase in cost of
services as a percentage of revenues.
Cost of Services in the Creative Services group increased $14.4 million, or
27.3%, to $67.1 million in 1997 and accounted for 16% of the Company's total
increase in cost of services for 1997. Cost of services as a percentage of
revenues increased to 80.1% in 1997 from 78.2% in 1996 due primarily to an
increase in personnel costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $22.5 million, or 21.7%, to $126.2 million in
1997 from $103.7 million in 1996. Selling, general and administrative expenses
as a percentage of revenues remained fairly consistent at 20.6% in 1997 and
21.0% in 1996.
Selling, general and administrative expenses in the Direct Services group
increased $9.3 million, or 15.5%, to $69.3 million. Selling, general and
administrative expenses as a percentage of revenues remained fairly consistent
at 21.7% in 1997 and 21.3% in 1996.
Selling, general and administrative expenses in the Healthcare Services group
increased $8.4 million, or 34.4%, to $32.8 million. Selling, general and
administrative expenses as a percentage of revenues decreased to 15.7% in 1997
from 16.9% in 1996 because a moderate increase in overhead expenses was spread
over a larger base of revenues.
Selling, general and administrative expenses in the Creative Services group
increased $3.8 million, or 35.2%, to $14.6 million. Selling, general and
administrative expenses as a percentage of revenues increased to 17.4% in 1997
from 16.0% in 1996 due primarily to an increase in personnel costs.
Corporate selling, general and administrative expenses increased $1.0 million,
or 11.8%, to $9.5 million. Corporate selling, general and administrative
expenses as a percentage of revenues was consistent for 1997 and 1996 at 1.6%
and 1.7%, respectively.
20
<PAGE>
Compensation to Stockholders. Compensation to stockholders was $28.1 million
in 1997 and $17.3 million in 1996. Compensation to stockholders reflects
compensation paid to certain stockholders of acquired companies prior to their
respective mergers with the Company that is in excess of the compensation
provided for in their employment contracts with the Company. The amount by
which the historical compensation paid to these stockholders exceeds the amount
provided for in their respective employment contracts with the Company has been
classified as compensation to stockholders. No compensation to stockholders is
recorded subsequent to an acquisition by the Company. The composition of the
amount recorded in 1997 varies from the amount recorded in 1996, because the
amounts recorded were based on specific criteria and agreements at certain
acquired companies that existed in 1997 and in 1996 prior to their respective
mergers with the Company.
ESOP Expense. ESOP expense decreased $1.2 million, or 18.2%, to $5.4 million in
1997 from $6.6 million in 1996. ESOP expense represents the fair value of
shares released to ESOP participants during the period. During 1997, all
outstanding debt of the ESOP was repaid, and the Company will not record ESOP
expense in future periods.
Recapitalization Costs. Recapitalization costs were $1.9 million in 1997. One
of the acquired entities completed a recapitalization in 1997 prior to its 1998
merger with the Company. No recapitalization costs were incurred in 1996, and
the Company does not expect to incur any recapitalization costs in future
periods.
Acquisition and Related Costs. The Company recorded $39.4 million in
nonrecurring acquisition and related costs during 1997. Of the $39.4 million,
$34.1 million are costs directly related to the consummation of the Company's
1997 Acquisitions. These costs include primarily investment banking fees, other
professional service fees, certain U.K. excise and transfer taxes, as well as a
non-cash charge of approximately $9.1 million related to the accelerated vesting
of the options held by employees of one of the acquired companies. The
remaining $5.3 million consists of the write-off of deferred license fees and
the accrual of a liability expected to resolve outstanding litigation. Both the
write-off of the deferred fees and the accrual of the liability were recorded
due to changes in fact which resulted from the Company's 1997 Acquisitions.
Interest Expense. The Company recorded $4.8 million of interest expense in 1997
and $6.1 million of interest expense in 1996. The Company does not have any
significant debt obligations outstanding. The interest expense recorded in both
1997 and 1996 consists primarily of interest on debt at acquired companies prior
to their acquisition by the Company. The Company generally repays the debt of
its acquirees.
Investment Income. The Company recorded $3.5 million of investment income in
1997 and $3.2 million of investment income in 1996. The amount recorded in
investment income is directly related to the amount of funds available for
investment.
Income Tax Provision. The Company recorded a $4.9 million tax provision in
1997, consisting of a $23.3 million provision for the $54.4 million in income
from recurring operations less interest, a $13.9 million benefit from the $74.8
million in nonrecurring costs, and a $4.5 million benefit from the S corporation
status of certain entities prior to their respective acquisitions by the
Company. The Company's effective tax rate for the year ended December 31, 1997
differs from the Federal statutory rate due primarily to the nondeductibility of
certain of the nonrecurring costs and state income taxes. Pro forma net income
discussed below includes a provision for income taxes as if all operations of
the Company had been taxed as a C corporation for the year ended December 31,
1997.
21
<PAGE>
The income tax provision of $6.2 million in 1996 reflects the actual income tax
provisions of the previously separate companies before their respective
acquisitions by the Company. Not all of the entities acquired were subject to
income taxes prior to their respective acquisitions by the Company. Also, for
the period from January 1, 1996 until the Reorganization on September 24, 1996,
the Company had elected to be treated for federal and certain state income tax
purposes as an S corporation, and therefore, the stockholders of the Company
were taxed on their proportionate share of the Company's taxable income, and the
Company did not have an obligation to pay income taxes. Pro forma net income
discussed below includes a provision for income taxes, as if all operations of
the Company had been taxable as a C corporation in 1996.
Discontinued Operations. In October 1997, the Board of Directors of one of the
Company's 1998 acquirees approved the spin-off of its sports management
operations which were carried on by one of its wholly owned subsidiaries, Bob
Woolf Associates, Inc. ("BWA"). The acquiree purchased BWA in May 1996. The
spin-off was executed in the form of a dividend to the acquiree's stockholders
of record on October 31, 1997, whereby each stockholder received one share of
BWA for each share of the acquiree's common stock owned.
Extraordinary Item. In October 1996, the Company redeemed in full the
subordinated debentures and recorded an extraordinary loss of $1.2 million, net
of income taxes. The extraordinary loss consists of prepayment penalties and
the write-off of unamortized discount and debt issuance costs.
Pro Forma Net Income (Loss). Pro forma net income (loss) decreased $37.4
million to a net loss of $30.8 million in 1997 from net income of $6.6 million
in 1996. The nonrecurring costs recorded in 1997, slightly offset by the
growth of the Company, resulted in the overall decrease in pro forma net income
(loss). Pro forma net income adjusted to exclude nonrecurring costs, consisting
of compensation to stockholders, ESOP expense, recapitalization costs and
acquisition and related costs, as well as the extraordinary item and
discontinued operations increased $5.8 million, or 23.0%, to $31.0 million in
1997 from $25.2 million in 1996. The increase in pro forma net income adjusted
to exclude nonrecurring costs is consistent with the overall growth of the
Company.
Liquidity and Capital Resources
At December 31, 1998, the Company had $73.6 million in cash and equivalents.
Cash and equivalents decreased $16.2 million due to the $60.1 million used in
investing activities, offset by the $24.5 million provided by operating
activities, the $18.4 million provided by financing activities and the $0.8
million effect of exchange rate changes. The cash used for investing activities
consists primarily of cash used for purchases of property, equipment and
subsidiaries. The cash provided by financing activities consists primarily of
proceeds from the issuance of stock and the exercise of stock options offset by
the repayment of borrowings. The Company's operations have provided positive
cash flows in each of the three years ended December 31, 1998.
The Company experienced significant growth during 1998 and expects to continue
to grow through both internal expansion and complementary acquisitions. The
Company believes that its cash and equivalents, as well as the cash provided by
operations, will be sufficient to fund its current operations and planned
capital expenditures. To the extent that the consideration paid for future
acquisitions does not include securities of the Company, acquisitions will
initially be financed using excess cash and equivalents, but depending on the
amount necessary to complete an acquisition, additional financing may be
required.
The Company is undergoing an assessment of its current systems and equipment and
is in the process of making the modifications necessary to address the issues
presented by the Year 2000. The Company has identified certain systems within
its Direct Services and Healthcare Services groups that are not yet compliant
with the Year 2000. Modifications have already begun on all of these systems.
The Company expects to incur no more than $3.0 million in capital expenditures
on system upgrades which are designed in part to address specific Year 2000
requirements. Approximately $1.8 million was incurred through December 31, 1998.
The Company began testing its systems for compliance with the Year 2000 in 1997
22
<PAGE>
and expects testing to be completed on its current systems by the middle of
1999. Although the Company believes that it will achieve Year 2000 compliance
for its systems prior to January 1, 2000 without incurring significant
additional costs, there can be no assurance that such compliance will be
achieved or that it will be achieved without additional significant costs. If
Year 2000 compliance cannot be confirmed subsequent to making the necessary
modifications, the Company intends to seek other compliant systems for itself or
to develop other contingency arrangements. To the extent that additional
acquisitions are consummated, the Company will need to evaluate how the Year
2000 will impact its future acquirees.
The Company is subject to the impact of foreign currency fluctuations,
specifically that of the British pound and French franc. To date, changes in
the British pound and French franc exchange rates have not had a material impact
on the Company's liquidity or results of operations. The Company continually
evaluates its exposure to exchange rate risk but does not currently hedge such
risk.
Given the extent of the Company's services currently provided in continental
Europe and the nature of those services, the Company does not expect the
introduction of the EURO to have a material impact on its operations or cash
flows. The Company will continue to evaluate the impact of the introduction of
the EURO as it continues to expand the services offered and the European
locations in which it operates.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
At December 31, 1998, the Company had approximately $13.8 million of long-term
debt. Based upon the relative insignificance of long-term debt to the Company's
financial position, the Company does not believe that it has significant
exposure to the volatility of interest rates. Approximately 37% of the Company's
revenues are earned outside of the United States, with the majority earned in
the United Kingdom and the remainder earned largely in France and Germany. All
foreign operations incur both income and expenses in their local currency, and
accordingly, the Company does not believe it has significant economic exposure
to fluctuations in foreign exchange rates. Because the Company is required to
report its foreign operations as if they had been incurred in U.S. dollars,
fluctuations in foreign exchange rates could have a detrimental impact on the
reported financial results under Generally Accepted Accounting Principles. The
Company does not currently engage in hedging or other market risk management
tools.
23
<PAGE>
Item 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Page
-------
Snyder Communications, Inc.
Consolidated Financial Statements
<S> <C>
Report of Independent Public Accountants...................................................................... 25
Consolidated Balance Sheet as of December 31, 1998 and 1997................................................... 26
Consolidated Statement of Income, including unaudited pro forma data, for the
years ended December 31, 1998, 1997 and 1996.................................................................. 27
Consolidated Statement of Equity and Comprehensive Income for the years
ended December 31, 1998, 1997 and 1996........................................................................ 28
Consolidated Statement of Cash Flows for the years ended December 31, 1998,
1997 and 1996................................................................................................. 30
Notes to Consolidated Financial Statements.................................................................... 32
Brann Holdings Limited
Report of Independent Accountants............................................................................. 54
American List Corporation
Report of Independent Certified Public Accountants............................................................ 55
Report of Independent Public Accountants...................................................................... 56
Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts................................................................ 57
</TABLE>
24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Snyder Communications, Inc.:
We have audited the accompanying consolidated balance sheets of Snyder
Communications, Inc. and subsidiaries (the "Company") as of December 31, 1998
and 1997, and the related consolidated statements of income, equity and
comprehensive income and cash flows for each of the years in the three year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the 1996 financial statements of American List Corporation or Brann
Holdings Limited included in the consolidated financial statements of the
Company, which statements reflect revenues constituting 13% of the related
consolidated total in 1996. These statements were audited by other auditors
whose reports have been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts included for American List Corporation or
Brann Holdings Limited, is based solely upon the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Snyder Communications, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Washington, D.C.
February 3, 1999
25
<PAGE>
SNYDER COMMUNICATIONS, INC.
Consolidated Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
------------ ------------
ASSETS
------
<S> <C> <C>
Current assets:
Cash and equivalents........................................................................ $ 73,595 $ 89,829
Marketable securities....................................................................... 612 2,348
Accounts receivable, net of allowance for doubtful accounts of $10,002 and $7,817 at
December 31, 1998 and 1997, respectively................................................... 122,422 97,696
Receivables from pass-through costs......................................................... 86,015 77,221
Related party receivables................................................................... 190 3,763
Unbilled services........................................................................... 34,920 20,730
Current portion of deferred tax asset....................................................... 19,546 12,013
Other current assets........................................................................ 21,929 18,932
------------ ------------
Total current assets................................................................ 359,229 322,532
------------ ------------
Property and equipment, net................................................................... 80,395 46,130
Goodwill and other intangible assets, net..................................................... 153,016 68,943
Deferred tax asset............................................................................ 93,349 4,569
Deposits and other assets..................................................................... 9,671 10,172
------------ ------------
Total assets........................................................................ $695,660 $452,346
============ ============
LIABILITIES AND EQUITY
----------------------
Current liabilities:
Lines of credit............................................................................. $ 2,023 $ 32,050
Current maturities of long-term debt........................................................ 1,085 2,615
Accrued payroll............................................................................. 27,412 25,055
Accounts payable............................................................................ 120,333 105,154
Accrued expenses............................................................................ 126,321 101,572
Client advances............................................................................. 13,718 12,675
Unearned revenue............................................................................ 22,981 30,127
------------ ------------
Total current liabilities........................................................... 313,873 309,248
------------ ------------
Related party borrowings...................................................................... 8,924 7,529
Long-term obligations under capital leases.................................................... 1,750 1,860
Long-term debt, net of current maturities..................................................... 3,089 3,935
Other liabilities (including deferred income taxes of $3,329 at December 31, 1998)............ 7,686 6,235
Commitments and contingencies
Redeemable ESOP stock, 88 and 147 shares outstanding at December 31, 1998 and 1997,
respectively................................................................................ 2,960 5,278
Equity:
Preferred stock, $.001 par value per share, 5,000 shares authorized, none issued and
outstanding at December 31, 1998 and 1997.................................................. -- --
Common stock, $.001 par value per share, 400,000 and 120,000 shares authorized, 71,480 and
67,950 shares issued and outstanding at December 31, 1998 and 1997, respectively........... 71 68
Additional paid-in capital.................................................................. 375,114 180,086
Treasury stock, at cost, 1,053 shares at December 31, 1997.................................. -- (42,705)
Accumulated other comprehensive income...................................................... 1,829 640
Retained deficit............................................................................ (19,636) (19,828)
------------ ------------
Total equity........................................................................ 357,378 118,261
------------ ------------
Total liabilities and equity........................................................ $695,660 $452,346
============ ============
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
26
<PAGE>
SNYDER COMMUNICATIONS, INC.
Consolidated Statement of Income
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
(in thousands, except per share data)
<S> <C> <C> <C>
Net revenues..................................................................... $815,303 $612,039 $493,927
Operating expenses:
Cost of services............................................................... 554,057 430,245 341,715
Selling, general and administrative expenses................................... 144,361 126,159 103,665
Compensation to stockholders................................................... 1,315 28,060 17,279
ESOP expense................................................................... -- 5,411 6,553
Recapitalization costs......................................................... -- 1,889 --
Acquisition and related costs.................................................. 65,863 39,430 --
------------ ------------ ------------
Income (loss) from operations.................................................... 49,707 (19,155) 24,715
Interest expense, including amounts to related parties of $555, $1,669 and
$2,734 in 1998, 1997 and 1996, respectively..................................... (4,068) (4,795) (6,076)
Investment income................................................................ 5,488 3,512 3,167
------------ ------------ ------------
Income (loss) from continuing operations before income taxes..................... 51,127 (20,438) 21,806
Income tax provision............................................................. (28,321) (4,916) (6,242)
------------ ------------ ------------
Income (loss) from continuing operations......................................... 22,806 (25,354) 15,564
Loss from discontinued operations................................................ -- (1,507) (1,498)
------------ ------------ ------------
Income (loss) before extraordinary item.......................................... 22,806 (26,861) 14,066
Extraordinary item, less applicable income taxes of $806......................... -- -- (1,216)
------------ ------------ ------------
Net income (loss)...................................................... $ 22,806 $(26,861) $ 12,850
============ ============ ============
Historical net income (loss) per share:
Basic net income (loss) per share
Income (loss) from continuing operations.................................... $ 0.33 $ (0.40) $ 0.26
============ ============ ============
Net income (loss)........................................................... $ 0.33 $ (0.42) $ 0.22
============ ============ ============
Diluted net income (loss) per share
Income (loss) from continuing operations.................................... $ 0.32 $ (0.40) $ 0.26
============ ============ ============
Net income (loss)........................................................... $ 0.32 $ (0.42) $ 0.21
============ ============ ============
Pro forma net income (loss) per share (unaudited) (Note 3):
Basic net income (loss) per share
Income (loss) from continuing operations.................................... $ 0.29 $ (0.47) $ 0.15
============ ============ ============
Net income (loss)........................................................... $ 0.29 $ (0.48) $ 0.11
============ ============ ============
Diluted net income (loss) per share
Income (loss) from continuing operations.................................... $ 0.28 $ (0.47) $ 0.14
============ ============ ============
Net income (loss)........................................................... $ 0.28 $ (0.48) $ 0.11
============ ============ ============
</TABLE>
The accompanying notes are an integral part of this consolidated income
statement.
27
<PAGE>
SNYDER COMMUNICATIONS, INC.
Consolidated Statement of Equity and Comprehensive Income
<TABLE>
<CAPTION>
Retained
Common Stock Common Stock Additional Earnings
Shares Par Value Paid-in Capital (Deficit)
------------- ------------- ---------------- ----------------
(in thousands, except share data)
<S> <C> <C> <C> <C>
Balance, December 31, 1995, as previously restated for
poolings.............................................. 31,896,000 $32 $ 15,857 $ 28,987
Distributions and dividends.......................... -- -- -- (27,735)
Net proceeds from stock issuances.................... 4,747,000 5 59,662 --
Exercise of stock options and subsidiary stock
appreciation rights................................. 63,000 -- 1,005 --
Foreign currency translation adjustment.............. -- -- -- --
Unrealized loss on marketable securities............. -- -- -- --
Purchases and retirements of treasury stock.......... (1,727,000) (2) (2,777) (124)
Reissuance of treasury stock......................... -- -- 95 --
Release of ESOP shares............................... -- -- 2,429 (538)
Reclassification of redeemable ESOP stock............ -- -- (2,183) --
Reorganization....................................... 28,959,000 29 (15,558) 7,630
Capital contribution acquired subsidiary............. -- -- 469 --
Net income........................................... -- -- -- 10,687
Comprehensive income.................................
------------- ------------- ---------------- ----------------
Balance, December 31, 1996............................. 63,938,000 64 58,999 18,907
Distributions and dividends.......................... -- -- -- (8,968)
Net proceeds from stock issuances.................... 1,850,000 2 42,711 --
Exercise of stock options and subsidiary stock
appreciation rights................................. 1,789,000 2 39,179 --
Issuance of shares for purchase of subsidiaries...... 644,000 1 14,013 --
Foreign currency translation adjustment.............. -- -- -- --
Unrealized gain on marketable securities............. -- -- -- --
Purchases and retirements of treasury stock.......... (740,000) (1) (4,241) (151)
Reissuance of treasury stock......................... 105,000 -- 3,950 --
Release of ESOP shares............................... -- -- 1,971 --
Reclassification of redeemable ESOP stock............ -- -- (2,826) --
Recapitalization of certain subsidiaries acquired in
1998................................................ 364,000 -- 20,827 (1,250)
Capital contribution acquired subsidiary............ -- -- 5,503 --
Net loss............................................. -- -- -- (26,861)
Impact from differing fiscal year end (Note 1)....... -- -- -- (1,505)
Comprehensive loss...................................
------------- ------------- ---------------- ----------------
<CAPTION>
Limited
Partners' Unearned ESOP
Deficit Compensation Treasury Stock
----------------- ------------------- ---------------
(in thousands, except share data)
<S> <C> <C> <C>
Balance, December 31, 1995, as previously restated for
poolings.............................................. $(1,450) $(4,324) $ (3,585)
Distributions and dividends.......................... (8,612) -- --
Net proceeds from stock issuances.................... -- -- --
Exercise of stock options and subsidiary stock
appreciation rights................................. -- -- --
Foreign currency translation adjustment.............. -- -- --
Unrealized loss on marketable securities............. -- -- --
Purchases and retirements of treasury stock.......... -- -- (6,433)
Reissuance of treasury stock......................... -- -- 475
Release of ESOP shares............................... -- 2,758 --
Reclassification of redeemable ESOP stock............ -- -- --
Reorganization....................................... 7,899 -- --
Capital contribution acquired subsidiary............ -- -- --
Net income........................................... 2,163 -- --
Comprehensive income.................................
----------------- ------------------- ---------------
Balance, December 31, 1996............................. -- (1,566) (9,543)
Distributions and dividends.......................... -- -- --
Net proceeds from stock issuances.................... -- -- --
Exercise of stock options and subsidiary stock
appreciation rights................................. -- -- --
Issuance of shares for purchase of subsidiaries...... -- -- --
Foreign currency translation adjustment.............. -- -- --
Unrealized gain on marketable securities............. -- -- --
Purchases and retirements of treasury stock.......... -- -- 3,011
Reissuance of treasury stock......................... -- -- 947
Release of ESOP shares............................... -- 1,566 --
Reclassification of redeemable ESOP stock............ -- -- --
Recapitalization of certain subsidiaries acquired in
1998................................................ -- -- (37,120)
Capital contribution acquired subsidiary............. -- -- --
Net loss............................................. -- -- --
Impact from differing fiscal year end (Note 1)....... -- -- --
Comprehensive loss...................................
----------------- ------------------- ---------------
<CAPTION>
Accumulated Other
Comprehensive Comprehensive
Income Total Income
----------------- ---------- -------------
(in thousands, except share data)
<S> <C> <C> <C>
Balance, December 31, 1995, as previously restated for
poolings.............................................. $ 527 $ 36,044 --
Distributions and dividends.......................... -- (36,347) --
Net proceeds from stock issuances.................... -- 59,667 --
Exercise of stock options and subsidiary stock
appreciation rights................................. -- 1,005 --
Foreign currency translation adjustment.............. (154) (154) (154)
Unrealized loss on marketable securities............. (111) (111) (111)
Purchases and retirements of treasury stock.......... -- (9,336) --
Reissuance of treasury stock......................... -- 570 --
Release of ESOP shares............................... -- 4,649 --
Reclassification of redeemable ESOP stock............ -- (2,183) --
Reorganization....................................... -- -- --
Capital contribution acquired subsidiary............ -- 469 --
Net income........................................... -- 12,850 12,850
---------
Comprehensive income................................. $ 12,585
----------- ---------- =========
Balance, December 31, 1996............................. 262 67,123 --
Distributions and dividends.......................... -- (8,968) --
Net proceeds from stock issuances.................... -- 42,713 --
Exercise of stock options and subsidiary stock
appreciation rights................................. -- 39,181 --
Issuance of shares for purchase of subsidiaries...... -- 14,014 --
Foreign currency translation adjustment.............. 356 356 356
Unrealized gain on marketable securities............. 22 22 22
Purchases and retirements of treasury stock.......... -- (1,382) --
Reissuance of treasury stock......................... -- 4,897 --
Release of ESOP shares............................... -- 3,537 --
Reclassification of redeemable ESOP stock............ -- (2,826) --
Recapitalization of certain subsidiaries acquired in
1998................................................ -- (17,543) --
Capital contribution acquired subsidiary............ -- 5,503 --
Net loss............................................. -- (26,861) (26,861)
Impact from differing fiscal year end (Note 1)....... -- (1,505) --
---------
Comprehensive loss................................... $(26,483)
----------- ---------- =========
</TABLE>
The accompanying notes are an integral part of this consolidated statement of
equity and comprehensive income.
28
<PAGE>
<TABLE>
<CAPTION>
Retained
Common Stock Common Stock Additional Earnings
Shares Par Value Paid-in Capital (Deficit)
------------- ------------- ---------------- ----------------
(in thousands, except share data)
<S> <C> <C> <C> <C>
Balance, December 31, 1997............................. 67,950,000 68 180,086 (19,828)
Distributions and dividends.......................... -- -- -- (7,316)
Net proceeds from secondary stock issuances.......... 500,000 -- 17,329 --
Exercise of stock options and subsidiary stock
appreciation rights................................. 1,094,000 1 32,259 --
Issuance of shares for purchase of subsidiaries and
property............................................ 1,906,000 2 59,665 --
Foreign currency translation adjustment.............. -- -- -- --
Unrealized loss on marketable securities............. -- -- -- --
Purchases and retirements of treasury stock.......... (1,152,000) (1) (2,471) (17,617)
Reissuance of treasury stock......................... 1,064,000 1 7,065 --
Reclassification of redeemable ESOP stock............ -- -- -- 2,319
Tax benefit from taxable merger transactions......... -- -- 76,927 --
Issuance of warrants by acquired subsidiary.......... -- -- 219 --
Compensation on shares and options issued by
acquired subsidiaries............................... 118,000 -- 4,035 --
Net income........................................... -- -- -- 22,806
Comprehensive income.................................
------------- ------------- ---------------- ----------------
Balance, December 31, 1998............................. 71,480,000 $71 $375,114 $(19,636)
============= ============= ================ ================
<CAPTION>
Limited
Partners' Unearned ESOP
Deficit Compensation Treasury Stock
----------------- ------------------- ---------------
(in thousands, except share data)
<S> <C> <C> <C>
Balance, December 31, 1997............................. -- -- (42,705)
Distributions and dividends.......................... -- -- --
Net proceeds from secondary stock issuances.......... -- -- --
Exercise of stock options and subsidiary stock
appreciation rights................................. -- -- 19
Issuance of shares for purchase of subsidiaries and
property............................................ -- -- --
Foreign currency translation adjustment.............. -- -- --
Unrealized loss on marketable securities............. -- -- --
Purchases and retirements of treasury stock.......... -- -- 14,742
Reissuance of treasury stock......................... -- -- 27,944
Reclassification of redeemable ESOP stock............ -- -- --
Tax benefit from taxable merger transactions......... -- -- --
Issuance of warrants by acquired subsidiary.......... -- -- --
Compensation on shares and options issued by
acquired subsidiaries............................... -- -- --
Net income........................................... -- -- --
Comprehensive income.................................
----------------- ------------------- ---------------
Balance, December 31, 1998............................. $ -- $ -- $ --
================= =================== ===============
<CAPTION>
Accumulated Other
Comprehensive Comprehensive
Income Total Income
----------------- ---------- -------------
(in thousands, except share data)
<S> <C> <C> <C>
Balance, December 31, 1997............................. 640 118,261 --
Distributions and dividends.......................... -- (7,316) --
Net proceeds from secondary stock issuances.......... -- 17,329 --
Exercise of stock options and subsidiary stock
appreciation rights................................. -- 32,279 --
Issuance of shares for purchase of subsidiaries and
property............................................ -- 59,667 --
Foreign currency translation adjustment.............. 1,242 1,242 1,242
Unrealized loss on marketable securities............. (53) (53) (53)
Purchases and retirements of treasury stock.......... -- (5,347) --
Reissuance of treasury stock......................... -- 35,010 --
Reclassification of redeemable ESOP stock............ -- 2,319 --
Tax benefit from taxable merger transactions......... -- 76,927 --
Issuance of warrants by acquired subsidiary.......... -- 219 --
Compensation on shares and options issued by
acquired subsidiaries............................... -- 4,035 --
Net income........................................... -- 22,806 22,806
---------
Comprehensive income................................. $ 23,995
----------- ---------- =========
Balance, December 31, 1998............................. $1,829 $357,378
=========== ==========
</TABLE>
The accompanying notes are an integral part of this consolidated statement of
equity and comprehensive income.
29
<PAGE>
SNYDER COMMUNICATIONS, INC.
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1998 1997 1996
---------- ----------- ---------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................................. $ 22,806 $ (26,861) $ 12,850
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization.............................................................. 22,886 15,684 14,049
Loss on repayment of subordinated debt..................................................... -- -- 2,021
Noncash charge from accelerated vesting of acquired subsidiary options..................... 4,035 9,097 --
Noncash ESOP expense....................................................................... -- 4,851 5,282
Deferred taxes............................................................................. (13,328) (11,415) (3,170)
Loss on disposal of assets................................................................. 751 3,382 861
Other noncash amounts...................................................................... 117 1,180 1,814
Changes in assets and liabilities:
Accounts receivable, net................................................................... (2,473) (33,341) (6,086)
Receivables from pass-through costs........................................................ (8,794) (11,592) (28,998)
Related party receivables.................................................................. 3,573 (120) (494)
Unbilled services.......................................................................... (13,256) (6,256) (5,309)
Deposits and other assets.................................................................. 1,941 (1) (343)
Other current assets....................................................................... (2,516) 3,462 (1,424)
Accrued payroll, accounts payable and accrued expenses..................................... 19,888 67,387 39,746
Client advances............................................................................ (665) -- --
Unearned revenue........................................................................... (10,422) 7,238 5,268
Impact from differing fiscal year ends..................................................... -- (2,761) --
---------- ----------- ---------
Net cash provided by operating activities............................................. 24,543 19,934 36,067
---------- ----------- ---------
Cash flows from investing activities:
Purchase of subsidiaries, net of cash acquired................................................ (18,711) (22,066) --
Purchase of property and equipment............................................................ (40,570) (20,862) (12,711)
Proceeds from sale of equipment............................................................... 787 234 320
Net sales of marketable securities............................................................ 1,837 8,081 1,893
Purchase of intangible assets................................................................. (1,493) (5,088) (2,845)
Note and net advances to stockholders of acquired subsidiaries................................ (1,940) 1,467 30
Impact from differing fiscal year ends........................................................ -- (446) --
---------- ----------- ---------
Net cash used in investing activities................................................. (60,090) (38,680) (13,313)
---------- ----------- ---------
Cash flows from financing activities:
Repayment of long-term notes payable to limited partners and others........................... (2,197) (31,090) (3,483)
Proceeds from issuance of subordinated debentures due to related parties...................... -- 425 294
Repayment of subordinated debentures due to related parties................................... -- -- (6,900)
Debt issuance costs........................................................................... -- -- (25)
Distributions and dividends................................................................... (6,161) (10,589) (31,872)
Proceeds (repayment) from long-term debt...................................................... (8,860) 5,372 1,516
Proceeds from mandatorily redeemable preferred stock.......................................... -- -- 3,238
Redemption of mandatorily redeemable preferred stock.......................................... -- (8,330) --
Net borrowings (repayments) on lines of credit................................................ (30,302) 19,297 (4,306)
Payments on capital lease obligations......................................................... (2,091) (2,115) (1,124)
Proceeds from exercise of options............................................................. 21,053 25,128 425
Proceeds from stock issuances................................................................. 52,339 43,250 60,532
Purchase and retirement of treasury stock..................................................... (5,347) (1,382) (6,741)
Redemption/issuance of stock in connection with recapitalization of acquired subsidiary....... -- (16,769) --
Loans provided by related parties............................................................. -- 10,000 --
Payment of related party loans................................................................ -- (10,000) --
Capital contribution acquired subsidiary..................................................... -- 5,503 --
Impact from differing fiscal year ends........................................................ -- 3,704 --
---------- ----------- ---------
Net cash provided by financing activities............................................. 18,434 32,404 11,554
---------- ----------- ---------
Effect of exchange rate changes................................................................. 879 206 1,171
Net (decrease) increase in cash and equivalents................................................. (16,234) 13,864 35,479
Cash and equivalents, beginning of period....................................................... 89,829 75,965 40,486
---------- ----------- ---------
Cash and equivalents, end of period............................................................. $ 73,595 $ 89,829 $ 75,965
========== =========== =========
</TABLE>
The accompanying notes are an integral part of this consolidated statement of
cash flows.
30
<PAGE>
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1998 1997 1996
---------- ----------- ---------
<S> <C> <C> <C>
(in thousands)
Disclosure of cash flow information:
Cash paid for interest including dividends on mandatorily redeemable preferred stock.......... $ 2,681 $ 2,667 $ 4,066
Cash paid for income taxes.................................................................... 13,811 7,726 8,276
Disclosure of noncash activities:
Equipment purchased under capital leases...................................................... 1,693 817 3,610
Distribution of note receivable from stockholder to SMS stockholders.......................... -- -- 2,725
Issuance of shares of common stock for purchase of subsidiaries............................... 54,443 13,320 --
Issuance of note for purchase of treasury stock............................................... -- 215 2,595
Redemption of common stock in exchange for note payable....................................... -- 457 --
Distribution of non-operating assets and distribution payable by subsidiary................... 1,154 -- --
Issuance of common stock related to stock appreciation rights................................. 3,484 -- --
Tax benefit from exercise of stock options.................................................... 7,742 5,312 99
Issuance of common stock for conversion of subsidiary debt.................................... 1,741 -- --
Acquisition of property and assumption of debt for common stock............................... 3,483 -- --
Issuance of notes for purchase of subsidiary.................................................. 5,242 -- --
Tax benefit from taxable merger transactions.................................................. 76,927 -- --
</TABLE>
The accompanying notes are an integral part of this consolidated statement of
cash flows.
31
<PAGE>
SNYDER COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
1. Organization, Basis of Presentation and Business:
Organization
On October 19, 1988, Collegiate Marketing and Communications, Inc., a Delaware
corporation (the "General Partner"), and a Delaware limited partnership
beneficially owned by Mortimer B. Zuckerman and Fred Drasner (the "Original
Limited Partner") entered into a partnership agreement (the "Partnership
Agreement") under the name Collegiate Marketing and Communications, L.P. (the
"Partnership"). On September 1, 1989, the name of the Partnership was changed
to Snyder Communications, L.P., and the name of the General Partner was
changed to Snyder Communications, Inc. On May 18, 1995, the Partnership
Agreement was amended to admit several new limited partners into the
Partnership. On June 25, 1996, the name of the General Partner was changed to
Snyder Marketing Services, Inc. ("SMS").
Snyder Communications, Inc., a Delaware corporation, was incorporated on June
25, 1996, to continue the business operations of the Partnership. Snyder
Communications, Inc., in conjunction with all of the existing partners in the
Partnership, reorganized on September 24, 1996 (the "Reorganization"), upon
the effectiveness of the initial public offering of its common stock.
Prior to the Reorganization, SMS owned 63.85% of the Partnership, and the
limited partners owned the remaining 36.15%. The Reorganization resulted in
the stockholders of SMS exchanging 100% of their SMS stock for stock of Snyder
Communications, Inc., simultaneously with the limited partners exchanging
their limited partnership interests in the Partnership for common stock of
Snyder Communications, Inc. After consummation of the Reorganization, Snyder
Communications, Inc. owned 100% of the stock of SMS and, directly and
indirectly (through its ownership of SMS), 100% of the interests in the
Partnership. In connection with the Reorganization, 29,458,400 shares of
common stock were issued to the stockholders of Snyder Communications, Inc.
("SNC"). Because of the continuity of ownership, the Reorganization was
accounted for by combining the assets, liabilities and operations of SMS, the
Partnership and Snyder Communications, Inc., at their historical cost basis.
Basis of Presentation
Throughout 1998 and 1997, SNC completed acquisitions that were accounted for
as poolings of interests for financial reporting purposes. The accompanying
consolidated financial statements have been retroactively restated to reflect
the pooling of interests transactions. During 1998 and 1997, the Company (as
defined herein) also made several acquisitions that have been accounted for as
purchase business combinations. The companies with which SNC has entered into
mergers accounted for as poolings of interests for financial reporting
purposes will be collectively referred to as the "Pooled Entities," and their
mergers will be referred to herein as the "Acquisitions." The accompanying
consolidated financial statements have been retroactively restated to reflect
the combined financial position and combined results of operations and cash
flows of SNC and the Pooled Entities, after elimination of all significant
intercompany transactions, for all periods presented, giving effect to the
Acquisitions as if they had occurred at the beginning of the earliest period
presented (the combined entity will be referred to hereafter as the
"Company"). Prior to its merger with SNC in July 1997, American List
Corporation utilized a February 28 fiscal year end. Concurrent with the
merger, American List Corporation changed its fiscal year end to December 31.
The accompanying consolidated statements of income, equity and comprehensive
income and cash flows for the year ended December 31, 1996 reflect the
combination of the American List Corporation statements of
32
<PAGE>
SNYDER COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements - (Continued)
income, equity and comprehensive income and cash flows for the year ended
February 28, 1997. Certain amounts previously presented have been reclassified
to conform to the December 31, 1998 presentation. The consolidated balance
sheets for all periods presented give effect to the conversion of the shares
of the Pooled Entities' common stock into 31,018,532 shares of SNC common
stock.
Business
The Company provides fully integrated marketing solutions for its clients and
characterizes its service offerings into three types: direct services,
healthcare services and creative services. The Company's operations are
conducted throughout the United States ("U.S."), the United Kingdom ("U.K."),
France, Germany, Ireland, the Netherlands and Hungary.
The direct services offered by the Company are marketing and sales solutions
designed to directly reach certain, sometimes targeted, consumer groups. The
programs offered within direct services focus on stimulating and creating
brand awareness as well as acquiring and retaining customers. The specific
services offered within direct services include strategic planning and design,
WallBoard(R) and other information displays, proprietary sampling programs and
publications, face-to-face field sales, teleservices, database mailings,
interactive services, and return-on-investment evaluation. During 1998 and
1997, the Company issued 5,655,730 and 10,414,885 shares, respectively, in
pooling of interests transactions with companies that provide direct services.
These transactions include the acquisitions of Brann Holdings Limited
("Brann"), Blau Marketing Technologies, Inc. ("Blau"), Response Marketing
Group, LLC ("RMG"), Bounty Group Holdings Limited ("Bounty"), Sampling
Corporation of America ("SCA"), American List Corporation ("American List"),
Echo Marketing, Inc. ("Echo") and National Sales Services, Inc. ("NRS").
Brann's operations are conducted throughout the U.K. and consist primarily of
planning, creating and delivering direct response marketing communications;
marketing systems design and consultancy; print production services; and
telephone and response management services for companies involved in direct
marketing and selling. Blau's operations are conducted throughout the U.S.
and consist primarily of strategic consulting and design; program creation and
implementation; consumer database management; response tracking and analysis;
and production management. RMG's operations are also conducted throughout the
U.S. and consist primarily of database and analytical services; strategic
consulting and design; and marketing campaign management. Brann, Blau and RMG
all provide a broad range of services and full-scale direct marketing and
sales solutions. The services offered by Bounty, SCA, American List and NRS
are more focused and consist primarily of product sampling at Bounty and SCA,
data mining at American List and field marketing at NRS. Bounty provides
targeted product sampling and proprietary publications to expectant mothers,
new mothers and parents of toddlers in the U.K. and Ireland. SCA distributes
product samples and proprietary publications on behalf of consumer packaged
goods manufacturers in the U.S. through primary and secondary schools, daycare
centers, colleges and immigrant organizations. American List develops,
maintains and markets databases of high school, college and pre-school through
junior high school students in the U.S. NRS provides marketing and
merchandising services for its clients throughout the U.S., and its services
include reporting and data analysis, consulting, distribution and in-store
merchandising.
The healthcare services offered by the Company are designed to establish and
monitor marketing plans as well as to provide face-to-face interaction with
physicians and other healthcare providers. Healthcare services consist
primarily of pharmaceutical detailing and sales force training, but also
include educational communications as well as establishing marketing plans,
targeting specific markets and evaluating sales performance. During 1998 and
1997, the Company issued 7,340,236 and 4,035,184 shares, respectively, in
pooling of interests transactions with companies that provide healthcare
services. These transactions include the acquisitions of MMD, Inc. ("MMD"),
GEM Communications, Inc. ("GEM"), Rapid Deployment Group Limited ("RDL"),
PharmFlex, Inc. ("PharmFlex"), Health Products Research, Inc. ("HPR"),
Publimed Promotions S.A. ("Publimed"), Clinical Communications Group, Inc.
("Clinical") and MKM Marketinginstitut GmbH ("MKM").
33
<PAGE>
SNYDER COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements - (Continued)
The Company acquired Halliday Jones Sales Ltd. ("HJ") in a purchase
transaction in 1997, as well as Healthcare Promotions, LLC ("HCP") and CLI
Pharma S.A. ("CLI Pharma") in purchase transactions in 1998. MMD, RDL, HJ,
PharmFlex, HCP, Publimed, CLI Pharma and MKM all market medical products for
pharmaceutical companies utilizing technically trained sales representatives.
MMD, PharmFlex and HCP all operated throughout the U.S., and their operations
have been combined into Snyder Healthcare Sales U.S. RDL and HJ both operated
primarily in the U.K., but RDL also had operations in Hungary. RDL and HJ have
been combined into Snyder Healthcare Services U.K. Publimed and CLI Pharma
both operated in France, and their operations have been combined into Snyder
Healthcare Services France. MKM continues to operate as such in Germany. GEM
and Clinical provided a complete range of healthcare communication services
with specialties in educational research, marketing and publishing for the
pharmaceutical industry. The operations of GEM and Clinical have been combined
into Snyder Healthcare Communications. HPR provides strategic and tactical
sales force market planning and evaluation services to leading pharmaceutical
and medical device manufacturers. HPR's services include sales and marketing
resource allocation, sales force planning and the integration and evaluation
of sales and marketing promotions.
The creative services offered by the Company were established with the
acquisition of Arnold Communications, Inc. ("Arnold") in the U.S. and expanded
with the acquisition of BDDH Group Plc ("BDDH") in the U.K. Creative services
are designed to provide customized advertising for clients and include
advertising, creative design, public relations, media placement and
interactive services. During 1998, the Company issued 3,572,497 shares in
pooling of interests transactions with Arnold and BDDH.
The following details revenues and net income (loss) for each of the years
ended December 31, 1998, 1997 and 1996 of SNC and the Pooled Entities through
the dates of their respective Acquisitions:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1998 1997 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Revenues:
SNC................. $673,011 $220,907 $ 82,840
Pooled Entities..... 142,292 391,132 411,087
-------- -------- --------
$815,303 $612,039 $493,927
======== ======== ========
Net income (loss):
SNC................. $ 38,139 $ 7,576 $ 6,977
Pooled Entities..... (15,333) (34,437) 5,873
-------- -------- --------
$ 22,806 $(26,861) $ 12,850
======== ======== ========
</TABLE>
Unaudited Pro Forma Information
During the year ended December 31, 1998, the Company recorded $67.2 million of
nonrecurring costs, consisting of acquisition and related costs and
compensation to stockholders. Consolidated net income adjusted to exclude
nonrecurring acquisition and related costs and compensation to stockholders
was $73.3 million for the year ended December 31, 1998.
During the year ended December 31, 1997, the Company recorded $76.3 million of
nonrecurring costs, consisting of acquisition and related costs, ESOP expense,
recapitalization costs, compensation to stockholders and discontinued
operations. Consolidated net income adjusted to exclude nonrecurring
acquisition and related costs, ESOP expense, recapitalization costs,
compensation to stockholders and discontinued operations was $31.0 million for
the year ended December 31, 1997.
During the year ended December 31, 1996, the Company recorded $27.4 million of
nonrecurring costs, consisting of ESOP expense, compensation to stockholders,
discontinued operations and the net extraordinary loss. Consolidated net
income adjusted to exclude ESOP expense, compensation to
34
<PAGE>
SNYDER COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements - (Continued)
stockholders, discontinued operations and an extraordinary loss was $25.2
million for the year ended December 31, 1996.
During 1998, the Company completed purchase business combinations, including
CLI Pharma (March 25, 1998) and HCP (February 13, 1998), for total
consideration paid of approximately $91.6 million (1,376,099 shares of common
stock and $16.9 million in net cash). Based upon an allocation of purchase
consideration, these purchase business combinations have resulted in
additional goodwill of approximately $85.7 million. During 1997, the Company
completed the acquisition of HJ, and the total consideration paid, including
the repayment of assumed debt immediately following the closing, was $19.4
million and consisted of 425,478 shares of common stock and $7.4 million in
cash. The following table presents pro forma financial information as if the
Company's 1998 purchases of HCP and CLI Pharma and 1997 purchase of HJ had
been consummated at the beginning of each of the periods presented and all of
the Company's operations had been taxed as a C corporation.
<TABLE>
<CAPTION>
For the Years Ended
December 31,
--------------------------
1998 1997
------------ ------------
(unaudited)
(in thousands, except per
share data)
<S> <C> <C>
Pro forma revenues............................................... $825,365 $672,182
Pro forma income (loss) from continuing operations............... 20,235 (27,583)
Pro forma net income (loss)...................................... 20,235 (28,483)
Pro forma basic net income (loss) per share...................... 0.29 (0.44)
Pro forma diluted net income (loss) per share.................... 0.28 (0.44)
</TABLE>
The pro forma income from continuing operations and the pro forma net income
for the year ended December 31, 1998 include $67.2 million of nonrecurring
acquisition and related costs and compensation to stockholders that were
recorded in conjunction with the consummation of the Company's mergers with
the Pooled Entities. Pro forma net income, adjusted to exclude nonrecurring
acquisition and related costs and compensation to stockholders, was $73.4
million. Pro forma basic and diluted net income per share for the same period
were $1.05 and $1.02, respectively.
The pro forma loss from continuing operations and the pro forma net loss for
the year ended December 31, 1997, include $76.3 million of nonrecurring
acquisition and related costs, ESOP expense, recapitalization costs,
compensation to stockholders and discontinued operations that were recorded by
Pooled Entities prior to their acquisitions by the Company. Pro forma net
income, adjusted to exclude nonrecurring acquisition and related costs, ESOP
expense, recapitalization costs, compensation to stockholders and discontinued
operations, was $33.3 million. Pro forma basic and diluted net income per
share for the same period were $0.51 and $0.50, respectively.
The Company's other purchase business combinations are immaterial to the
consolidated financial statements.
Business Considerations
There are important risks associated with the Company's business and financial
results. These risks include (i) the Company's reliance on significant
clients; however, no one client represented greater than 6% of its 1998
revenues (see Note 2); (ii) the Company's ability to sustain and manage future
growth; (iii) the Company's ability to manage and successfully integrate the
businesses it has acquired and may acquire in the future; (iv) the Company's
ability to successfully manage its international operations; (v) the potential
adverse effects of fluctuations in foreign exchange rates; (vi) the Company's
dependence on industry trends toward outsourcing of marketing services; (vii)
the risks associated with the Company's reliance on technology and the risk of
business interruption resulting from a temporary or permanent loss of such
technology; (viii) the entrance of new competitors with
35
<PAGE>
SNYDER COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements - (Continued)
greater resources than the Company; (ix) the Company's ability to recruit and
retain qualified personnel; and (x) the dependence of the Company's success on
its executive officers and other key employees, in particular, its Chairman of
the Board of Directors and Chief Executive Officer.
2. Significant Client:
The Company had one client that represented 10.3% and 10.2% of the Company's
total revenues for the years ended December 31, 1997 and 1996, respectively.
For the year ended December 31, 1998, no single client represented greater
than 6% of revenue.
3. Summary of Significant Accounting Policies:
Cash and Equivalents
Cash and equivalents are comprised principally of amounts in operating
accounts, money market investments and other short-term instruments, stated at
cost, which approximates market value, with original maturities of three
months or less.
Marketable Securities
The Company's investments are classified into two categories. Those securities
classified as "available-for-sale" are reported at market value. Debt
securities consisting of state and municipal bonds are classified as "held-to-
maturity" and are reported at amortized cost. Cost is determined using the
specific identification method. Unrealized gains and losses from securities
"available-for-sale" are reported as a separate component of equity and
comprehensive income.
Receivables From Pass-Through Costs
Receivables from pass-through costs relate to services purchased from third
parties, on behalf of clients, for which no revenue is recorded.
Property and Equipment
Property and equipment is stated at cost. The Company depreciates furniture,
fixtures and office and telephone equipment on a straight-line basis over
three to ten years; computer equipment over two to four years and buildings
over forty years. Leasehold improvements are amortized on a straight-line
basis over the shorter of the term of the lease or the estimated useful lives
of the improvements.
When assets are retired or sold, the cost and related accumulated depreciation
and amortization are removed from the accounts, and any gain or loss is
reflected in income.
Revenue Recognition
Direct Services--The Company performs marketing and sales communications
services on behalf of its clients, including database management, interactive
services, creative design, direct response marketing, WallBoard(R) information
displays, sampling programs, print production, field sales and teleservices.
Revenues are recognized as services are rendered in accordance with the terms
of the contracts. Certain of these contracts provide for payments based on
accepted customers and the type
36
<PAGE>
SNYDER COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements - (Continued)
of service purchased by the customer. Revenues related to these sales are
recognized on the date the application for service is accepted by the
Company's clients. At this point, the Company has no further performance
obligation related to the submitted customer and is contractually entitled to
payment. Certain of the contracts include postage and other pass-through costs
incurred by the Company on behalf of its clients. For these contracts, the
Company records as revenue the net billings to its clients. For WallBoard(R)
and sampling programs, unearned revenue is recorded for billings prior to the
earning of such revenue. Revenues from the sale of lists are recognized upon
the shipment to customers of lists on computerized labels, magnetic tape or
computer diskettes for a one-time usage. Additional billings are made by the
Company for additional usage by the customers.
Healthcare Services--On pharmaceutical detailing contracts, the Company
recognizes revenue and associated costs when services have been performed by
account executives. On educational marketing programs the Company recognizes
revenues and associated costs as services are performed on behalf of clients.
Unbilled services represent revenues earned on contracts but billed in a
subsequent accounting period.
Creative Services--The Company provides advertising, creative design, public
relations, media placement, and interactive services to its clients. Revenue
is recognized as services are rendered. Certain of the contracts include
media, postage and other pass-through costs purchased by the Company on behalf
of its clients. For these contracts, the Company records as revenue the net
billings to its clients.
Goodwill and Other Intangible Assets
Goodwill equal to the fair value of consideration paid in excess of the fair
value of net assets purchased has been recorded in conjunction with several of
the Company's purchase business combinations and is being amortized on a
straight-line basis over periods of seven to thirty years.
The costs of customer lists that were acquired in conjunction with certain of
the Company's purchase business combinations are amortized on a straight-line
basis over seven years. The contractual covenant and the marketing rights are
amortized over the term of the related agreements, which are four and ten to
fifteen years, respectively.
Costs of purchased lists are amortized on a straight-line basis over their
estimated useful lives, generally one to five years. The Company determines
the useful lives of its lists based upon the estimated period of time such
lists are marketable. The Company periodically reviews the marketability of
its lists and, accordingly, their respective estimated useful lives.
The costs of licenses to use, reproduce and distribute lists and market
pharmaceutical products are amortized on a straight-line basis over the term
of the related license agreement.
When conditions or events occur that management believes might indicate that
the goodwill or any other intangible asset is impaired, an analysis of
estimated future undiscounted cash flows is undertaken to determine if any
write down in the carrying value of the asset is required.
Income Taxes
Prior to their merger with SNC, certain of the U.S. based Pooled Entities were
treated as S corporations or Limited Liability Companies for income tax
purposes. Accordingly, no provision for federal or state income taxes, except
in certain states that do not recognize S Corporations or Limited Liability
Companies, has been made for these entities through the date of their mergers
with SNC in the accompanying consolidated financial statements.
37
<PAGE>
SNYDER COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements - (Continued)
The Company's subsidiaries with operations in the U.K., France and Germany pay
taxes in their respective countries, on a corporate level similar to a C
corporation in the U.S.
Effective January 1, 1996, SMS elected to be taxed as an S corporation under
the Internal Revenue Code. In lieu of corporate taxes, the stockholders of an
S corporation are taxed on their proportionate share of the Company's taxable
income. Effective with the Reorganization, SNC is treated as a C corporation
for federal and state income tax purposes. At the date of the Reorganization,
SNC recognized a net deferred tax asset and an associated tax benefit equal to
the cumulative net deductible temporary differences existing at that date.
The income tax provision recorded for the year ended December 31, 1996
includes a provision for income taxes for SNC for the period from September
24, 1996, the date of the Reorganization, through December 31, 1996, offset by
the net deductible temporary differences existing at the date of the
Reorganization.
The accompanying consolidated financial statements reflect no provision for
federal or state income taxes related to income earned by the Partnership
prior to the Reorganization since each of the partners of the Partnership
reflected their share of the Partnership's net income on their respective tax
returns.
Pro Forma Income (Loss) Data (Unaudited)
The unaudited pro forma net income (loss) and pro forma net income (loss) per
share amounts include a provision for federal and state income taxes as if the
Company had been a taxable C corporation for all periods presented. The shares
used in computing pro forma net income (loss) per share assume that the
Reorganization and the Acquisitions had occurred at the beginning of each of
the periods presented, reflect the issuance of additional shares as a result
of issuances of stock, the exercise of stock options, and the repurchase of
outstanding shares by certain subsidiaries of the Company prior to their
mergers with SNC. The pro forma income tax rate on the Company's recurring
operations reflects the combined federal, state and foreign income taxes of
approximately 38.0%, 42.9% and 44.8%, for the years ended December 31, 1998,
1997 and 1996, respectively. The pro forma income tax rates in the table
below differ from the pro forma income tax rates on the Company's recurring
operations due to the nondeductibility of certain of the acquisition and
related costs. The Company's December 31, 1998 tax provision exceeds its
statutory rate due to the recognition of certain acquisition and related
costs, which are not deductible for income tax purposes.
The table below presents this pro forma calculation of net income (loss):
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Pro forma net income (loss) data (unaudited):
Historical income (loss) from continuing operations before income taxes.. $ 51,127 $(20,438) $ 21,806
Pro forma provision for income taxes..................................... (30,982) (9,453) (13,137)
-------- -------- --------
Pro forma income (loss) from continuing operations....................... 20,145 (29,891) 8,669
Discontinued operations, less applicable pro forma income taxes of $607
and $603 for 1997 and 1996, respectively................................ -- (900) (895)
Extraordinary item, less applicable income taxes of $806................. -- -- (1,216)
-------- -------- --------
Pro forma net income (loss).............................................. $ 20,145 $(30,791) $ 6,558
======== ======== ========
</TABLE>
Accounting for Stock Options
The Company accounts for its stock-based compensation plan using the intrinsic
value based method in accordance with the provisions of APB Opinion No. 25,
"Accounting for Stock Issued to
38
<PAGE>
SNYDER COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements - (Continued)
Employees." Pro forma disclosure of net income and earnings per share,
calculated as if the Company accounted for its stock-based compensation plan
using the fair value based method in accordance with the provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS No. 123"), is included in Note 13.
Foreign Currency Translations
Assets and liabilities of the Company's international subsidiaries are
translated using the exchange rate in effect at the balance sheet date.
Revenue and expense accounts for these subsidiaries are translated using the
average exchange rate during the period. Foreign currency translation
adjustments are disclosed as a separate component of equity and comprehensive
income.
Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of the fair value of certain financial instruments. For
purposes of this disclosure, the fair value of a financial instrument is the
amount at which the instrument could be exchanged in a current transaction
between willing parties. Cash and equivalents, accounts receivable, unbilled
services and accounts payable approximate fair value because of the relatively
short maturity of these instruments. As a result of the related party nature
of the majority of the Company's outstanding borrowings at December 31, 1998
and 1997, and the fact that substantially all borrowings from third parties
were secured by the previously independent Pooled Entities that had capital
structures different than the Company's, it is impracticable to estimate the
fair value of the debt outstanding at these dates.
Concentration of Credit Risk
Concentration of credit risk is limited to cash and equivalents, marketable
securities, accounts receivable and unbilled services. The Company places its
investments in highly rated financial institutions, U.S. Treasury bills,
investment grade short-term debt instruments and state and local
municipalities, while limiting the amount of credit exposure to any one
entity. The Company's receivables are concentrated with customers in the
telecommunications, pharmaceutical and consumer packaged goods industries.
The Company does not require collateral or other security to support clients'
receivables.
New Accounting Pronouncements
During 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS No. 128") and has applied its provisions
to all years presented in these financial statements. SFAS No. 128 requires
primary earnings per share ("EPS") to be replaced with basic EPS. Basic EPS is
computed by dividing reported earnings available to common stockholders by the
39
<PAGE>
SNYDER COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements - (Continued)
weighted average number of shares outstanding without consideration of common
stock equivalents or other potentially dilutive securities. Fully diluted EPS,
now called diluted EPS, is also reported. Diluted EPS gives effect to common
stock equivalents and other potentially dilutive securities outstanding during
the period.
During 1998, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), and the
accompanying consolidated financial statements have been restated to conform
to the SFAS No. 130 requirements. Included within accumulated other
comprehensive income are the cumulative amounts for foreign currency
translation adjustments and unrealized gains and losses on marketable
securities. The cumulative foreign currency translation adjustment was
$1,817,697 and $576,420 as of December 31, 1998 and 1997, respectively. The
cumulative gain on marketable securities was $10,849 and $64,194 as of
December 31, 1998 and 1997, respectively.
During 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS No. 131"). The information required for operating groups is disclosed
in Note 20.
During 1998, the Company adopted Statement of Financial Accounting Standards
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" ("SFAS No. 132"). The disclosures required by SFAS No. 132 are
provided in Note 14.
4. Marketable Securities:
The amortized cost, unrealized gains and losses, and market values of the
Company's held-to-maturity and available-for-sale securities are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
December 31, 1998
Held to maturity, maturing in less than one year:
State and municipal bonds.......................... $ 4 $ - $ - $ 4
========= ========== ========== ======
Available for sale:
Equity securities.................................. $ 105 $ - $ (15) $ 90
Government income securities....................... 556 - (38) 518
--------- ---------- ---------- ------
$ 661 $ - $ (53) $ 608
========= ========== ========== ======
December 31, 1997
Held to maturity, maturing in less than one year:
State and municipal bonds.......................... $ 664 $ - $ - $ 664
========= ========== ========== ======
Available for sale:
Equity securities $ 915 $ 60 $ - $ 975
Government income securities 483 4 - 487
Municipal tax-exempt bonds 223 - (1) 222
--------- ---------- ---------- ------
$ 1,621 $ 64 $ (1) $1,684
========= ========== ========== ======
</TABLE>
As a result of changes in market value of the available-for-sale security
portfolio, a cumulative valuation adjustment of $11 thousand, $64 thousand and
$41 thousand is recorded in accumulated other comprehensive income at December
31, 1998, 1997 and 1996, respectively.
40
<PAGE>
SNYDER COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements - (Continued)
5. Property and Equipment:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
As of December 31,
-----------------------
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Buildings and leasehold improvements................................................. $ 55,048 $ 25,135
Computers and equipment.............................................................. 63,719 47,435
Furniture and fixtures............................................................... 14,330 13,804
-------- --------
133,097 86,374
Accumulated depreciation............................................................. (52,702) (40,244)
-------- --------
$ 80,395 $ 46,130
======== ========
</TABLE>
6. Goodwill and Other Intangible Assets:
Goodwill and other intangible assets consist of the following:
<TABLE>
<CAPTION>
As of December 31,
-----------------------
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Goodwill............................................................................. $149,313 $ 60,080
Unamortized costs of lists........................................................... 5,674 4,459
License agreements................................................................... 8,438 7,669
Customer lists and contractual covenant.............................................. 11,104 12,669
174,529 84,877
Accumulated amortization............................................................. (21,513) (15,934)
-------- --------
$153,016 $ 68,943
======== ========
</TABLE>
Goodwill arose from management buy-outs and purchase acquisitions at certain
of the Pooled Entities prior to their respective mergers with SNC and from the
Company's 1998 and 1997 purchase business combinations.
Amortization expense of goodwill and other intangible assets totaled $7.9
million, $4.2 million and $4.2 million in 1998, 1997 and 1996, respectively.
7. Debt:
Long-Term Borrowings
Long-term borrowings consist of the following:
<TABLE>
<CAPTION>
As of December 31,
----------------------
1998 1997
------- -------
(in thousands)
<S> <C> <C>
Notes, principally acquisition related, 7%-8%, due January 2000 and 2002............. $ 1,297 $ 1,226
German bank debt, 6.3% weighted average interest rate, due April 2004, partially
secured by building in Germany...................................................... 1,388 -
Belgian bank debt, 4.7% weighted average rate, due various dates
through 2005........................................................................ 346 -
French bank debt, 8.02% weighted average rate, due August 2002....................... 85 -
U.S. bank debt, commercial paper rate plus 2.7% (approximately 8.55%)................ - 2,099
United Kingdom bank debt, base rate plus 2.25% (approximately 7.25%), secured by
certain assets in the United Kingdom................................................ - 460
Obligations under license agreement, 7.25% imputed rate.............................. 1,058 1,558
Other, due within 12 months.......................................................... - 437
------- -------
4,174 5,780
Current maturities of long-term borrowings........................................... (1,085) (1,845)
------- -------
$ 3,089 $ 3,935
======= =======
</TABLE>
41
<PAGE>
SNYDER COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements - (Continued)
In addition to the debt listed above, approximately $5.1 million in debt with
a weighted average interest rate of 8.6%, primarily classified as current as
of December 31, 1996, was paid in full during 1997.
Related Party Borrowings
Related party borrowings consist of the following:
<TABLE>
<CAPTION>
As of December 31,
--------------------
1998 1997
------ ------
(in thousands)
<S> <C> <C>
Note payable, acquisition related, 7%, due September 30, 2002........................ $7,504 $3,682
Note payable, acquisition related, 5% for first two years and 7% during third, due
February 18, 2001................................................................... 1,420 -
Convertible subordinated debentures payable to shareholder of acquired subsidiary,
7%, due September 2000, converted prior to subsidiary's merger with SNC............. - 1,651
Shareholder loans of acquired subsidiary, 5.73% to 5.91%............................. - 1,571
Note payable to partner of acquired subsidiary, 9.5%................................. - 938
Promissory note payable to founder of acquired subsidiary, 6.0%...................... - 457
------ ------
8,924 8,299
Current maturities of related party borrowings....................................... - (770)
------ ------
$8,924 $7,529
====== ======
</TABLE>
On October 28, 1996, the Company used approximately $7.0 million of cash to
redeem in full the subordinated debentures (the "Debentures") due to related
parties. The Debentures were originally issued on May 18, 1995, with a face
amount of $6.0 million. Cash proceeds of $5.0 million were received upon
issuance of the Debentures. The difference between the cash proceeds received
and the face amount of the Debentures was accounted for as an original issue
discount. The Debentures had a stated interest rate of 12.25% (effective
interest rate to maturity of approximately 17%) and an original maturity date
of December 31, 2001. The $7.0 million payment consisted of the face amount
of the Debentures, a prepayment penalty and accrued interest. A nonrecurring
charge of $1.2 million ($.02 per diluted share), net of an $0.8 million tax
benefit, was recorded at December 31, 1996 as an extraordinary loss related to
this early debt extinguishment. The extraordinary item consists of prepayment
penalties and the write-off of unamortized discount and debt issuance costs.
In accordance with the provisions of its formation agreement and prior to its
merger with the Company, a subsidiary issued promissory notes to its founder
and an investor in the principal amounts of $6.7 million and $10.0 million,
respectively. The notes were unsecured, with interest at the prime rate plus
2.0%, and were payable no later than August 1, 1998. The notes were repaid in
full on November 25, 1997, together with accrued interest of $0.5 million.
In addition to the debt listed above, approximately $10.6 million in related
party debt with a weighted average interest rate of 8.3% and with maturities
that extended to 2008 was paid in full during 1997.
Both foreign and domestic term debt from banking and financing institutions
require certain subsidiaries to meet restrictive covenants concerning net
worth and debt service coverage and are secured by the assets of those
subsidiaries.
42
<PAGE>
SNYDER COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements - (Continued)
Future minimum payments as of December 31, 1998, on long-term borrowings,
excluding capital leases, are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1999............................................... $ 1,085
2000............................................... 848
2001............................................... 2,244
2002............................................... 8,189
2003............................................... 455
Thereafter......................................... 277
-------
Total........................................... 13,098
Current maturities................................. (1,085)
-------
Total........................................... $12,013
=======
</TABLE>
Lines of Credit
Lines of credit consist of the following:
<TABLE>
<CAPTION>
As of December 31,
--------------------
1998 1997
------ -------
(in thousands)
<S> <C> <C>
U.S. bank line of credit, prime rate plus 0.5% (8.25% at December 31, 1998), $2.3
million maximum borrowing limit..................................................... $1,825 $ 1,500
French bank line of credit, 8.02% weighted average stated interest rate, $4.1
million aggregate borrowing limit, various expiration dates through 2004............ 198 2,609
Secured reducing revolving loan of acquired U.S. subsidiary, 7.5%, due December 31,
2003, reflected as current liability as subsidiary was not in compliance with
certain financial covenants, terminated by the Company in 1998...................... - 20,000
U.S. financial banking institution line of credit, 30-day commercial paper rate plus
2.7% (7.94% at December 31, 1998), $5.5 million maximum borrowing limit............. -- 4,537
U.S. bank line of credit, 8.6% weighted average interest rate........................ -- 266
Related party line of credit from acquired U.S. subsidiary, prime rate plus 1% (9.5%
at December 31, 1997), terminated by the Company in 1998............................ -- 3,123
Other borrowings outstanding under credit lines...................................... -- 15
------ -------
$2,023 $32,050
====== =======
</TABLE>
The Company maintains various lines of credit with banking and financial
institutions, requiring certain subsidiaries to meet restrictive covenants
concerning net worth and debt service coverage and are secured by the assets
of those subsidiaries. In aggregate, the Company had lines of credit
available for $24.8 million with interest rates ranging from 7.50% to 8.60% at
December 31, 1998.
8. Capital Stock:
On May 21, 1998, the Company completed the public offering of 7,068,006 shares
of its common stock, par value $0.001 per share at an offering price of $42.00
per share. The offering included 500,064 newly issued shares of common stock
sold by the Company and 6,567,942 previously outstanding shares of common
stock sold by selling stockholders. The Company received net proceeds of
approximately $17.3 million from the offering, net of offering costs. The
Company did not receive any proceeds from the sale of shares of common stock
in the offering by the selling stockholders.
On September 24, 1997, the Company completed the public offering of 8,776,334
shares of its
43
<PAGE>
SNYDER COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements - (Continued)
common stock, par value $0.001 per share at an offering price of $25.8125 per
share. The offering included 1,850,000 newly issued shares of common stock
sold by the Company and 6,926,334 previously outstanding shares of common
stock sold by selling stockholders. The Company received net proceeds of
approximately $42.7 million from the offering, net of offering costs. The
Company did not receive any proceeds from the sale of shares of common stock
in the offering by the selling stockholders.
On September 30, 1996, the Company completed an initial public offering of
8,970,000 shares of its common stock, par value $0.001 per share at an
offering price of $17.00 per share. The offering included 4,038,162 newly
issued shares of common stock sold by the Company and 4,931,838 previously
outstanding shares of common stock sold by selling stockholders. The Company
received net proceeds of approximately $59.2 million from the offering, net of
offering costs. The Company did not receive any proceeds from the sale of
shares of common stock in the offering by the selling stockholders.
9. Income Taxes:
The Company's income tax provision includes the following components:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------
1998 1997 1996
------- -------- -------
(in thousands)
<S> <C> <C> <C>
Current:
U.S.--Federal........................................................ $17,197 $ 6,947 $ 5,647
U.S.--State and city................................................. 4,509 3,530 1,299
Foreign.............................................................. 11,400 5,377 2,564
33,106 15,854 9,510
Deferred:
U.S.--Federal........................................................ (4,689) (8,493) (1,953)
U.S.--State and city................................................. (1,169) (1,990) (469)
Foreign.............................................................. 1,073 (455) (846)
(4,785) (10,938) (3,268)
------- -------- -------
Income tax provision................................................. $28,321 $ 4,916 $ 6,242
======= ======== =======
</TABLE>
The provision for taxes on income before extraordinary item differs from the
amount computed by applying the U.S. federal income tax rate as a result of
the following:
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------
1998 1997 1996
------ ------- ------
(in thousands)
<S> <C> <C> <C>
Taxes at statutory U.S. federal income tax rate......................... 35.00% 35.00% 35.00%
Income taxed directly to owners......................................... (5.20) 25.69 (30.59)
State and city income taxes, net of federal tax benefit................. 5.60 (9.64) 5.45
Tax effect of Reorganization............................................ -- (1.45) (2.96)
Foreign tax rate differential........................................... (6.15) 5.03 0.28
Dividends on mandatorily redeemable preferred stock..................... -- (0.82) 0.84
Goodwill amortization................................................... 1.57 (1.35) 0.62
Acquisition costs and other permanent differences....................... 24.57 (76.51) 19.99
------ ------- ------
Effective tax rate...................................................... 55.39% (24.05)% 28.63%
====== ======= ======
</TABLE>
44
<PAGE>
SNYDER COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements - (Continued)
Deferred income taxes are recorded based upon differences between the
financial statement and tax bases of assets and liabilities. As of December
31, 1998 and 1997, temporary differences that give rise to the deferred tax
assets and liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
As of December 31,
-----------------------
1998 1997
-------- -------
<S> <C> <C>
Reserve for doubtful accounts........................................................ $ 4,502 $ 2,466
Accrued expenses..................................................................... 6,847 5,097
Intangible assets.................................................................... 85,093 --
Deferred compensation................................................................ 4,230 3,864
Tax losses of subsidiaries........................................................... 5,919 6,533
Tax benefit of capital losses........................................................ 1,202 1,202
Other................................................................................ 8,269 586
-------- -------
Gross deferred tax assets............................................................ 116,062 19,748
-------- -------
Property and equipment............................................................... (1,351) (37)
Performance revenues................................................................. (4,048) (2,660)
Other................................................................................ (3,091) (106)
-------- -------
Gross deferred tax liabilities....................................................... (8,490) (2,803)
-------- -------
Valuation allowance.................................................................. (3,167) (3,167)
-------- -------
Net deferred tax asset............................................................... $104,405 $13,778
======== =======
</TABLE>
Several of the Company's subsidiaries have capital and operating loss tax
carryforwards that can be realized only if these subsidiaries generate taxable
capital gains or operating income, respectively. At December 31, 1998 and
1997, management determined that a valuation allowance against the deferred
tax asset associated with these tax losses was required for one of these
subsidiaries. Management continually assesses whether the Company's deferred
tax asset is realizable and believes that the deferred tax asset, net of the
valuation allowance, is realizable at December 31, 1998.
The Company will receive a future benefit arising from the tax treatment of
three of its taxable mergers completed in 1998. In accordance with generally
accepted accounting principles, as a result of the mergers being accounted for
as poolings of interests, the net estimated future tax benefit of
approximately $76.9 million is reflected as a deferred tax asset in the
accompanying consolidated balance sheet as of December 31, 1998, with the
offsetting credit to additional paid-in capital.
At December 31, 1998, cumulative undistributed earnings of the Company's
foreign subsidiaries were approximately $11,070,000. No provision for U.S.
income taxes or foreign withholding taxes has been made since the Company
considers the undistributed earnings to be permanently invested in the foreign
countries. Determination of the amount of unrecognized deferred tax
liability, if any, for the cumulative undistributed earnings of the foreign
subsidiaries is not practicable since it would depend upon a number of factors
which cannot be known until such time as a decision to repatriate the earnings
is made.
10. Acquisition and Related Costs:
The Company recorded $65.9 million in nonrecurring acquisition and related
costs during 1998. These costs are primarily related to the consummation of
1998 mergers and consist of investment banking fees, expenses associated with
the accelerated vesting of options held by employees of certain of the
Company's acquirees, other professional service fees, transfer taxes and other
contractual payments. In addition, this amount includes a charge of
approximately $13.3 million for costs necessary to consolidate and integrate
certain of the Company's acquired operations in the U.S., the U.K. and France.
The Company is integrating acquired subsidiaries that provide similar services
within the same geographic regions. Approximately thirteen locations will be
consolidated into six, and the efforts will not have a significant impact on
the Company's workforce. The Company expects
45
<PAGE>
SNYDER COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements - (Continued)
these integration activities to be substantially complete by the third quarter
of 1999. The charge consists of approximately $5.0 million to consolidate and
terminate lease obligations, $6.9 million of severance and other costs
associated with the termination of 239 employees, and $1.4 million of fees
incurred for consulting services and other costs related to these integration
activities. Included in the terminated employees are 55 employees who elected
not to relocate and will be replaced. The remaining employees who were
terminated are primarily redundant operations and administrative personnel
whose functions will be performed by others upon completion of the
integration. As of December 31, 1998, 58 employees had terminated employment
with the Company and $3.0 million had been charged against the total
liability, including $1.5 million in severance and related payments.
The Company recorded $39.4 million in nonrecurring acquisition and related
costs during 1997. Of the $39.4 million, $34.1 million are costs directly
related to the consummation of 1997 mergers. These costs consist primarily of
investment banking fees, other professional service fees, certain U.K. excise
and transfer taxes, as well as a noncash charge of approximately $9.1 million
related to the accelerated vesting of the options held by employees of one of
the Company's acquirees. The remaining $5.3 million consists of the write-off
of deferred license fees and the accrual of a liability expected to resolve
outstanding litigation. Both the write-off of the deferred fees and the
accrual of the liability were recorded due to changes in fact that resulted
from the mergers.
11. Compensation to Stockholders:
Prior to their merger with SNC, certain stockholders of the acquired companies
received annual compensation in their roles as managers in excess of amounts
that they will receive pursuant to employment agreements they have entered
into with the Company. The amount by which the historical compensation paid to
these managers exceeds that provided in their employment contracts has been
classified as compensation to stockholders in the accompanying consolidated
statement of income.
12. Employee Stock Ownership Plan:
One of the Company's U.S. subsidiaries sponsors an employee stock ownership
plan ("ESOP") which covers primarily all of its employees who work one
thousand hours or more per plan year. Contributions to the ESOP were made at
the discretion of the subsidiary's Board of Directors and were equal to the
ESOP's debt service less dividends received by the ESOP. In December 1994, the
ESOP acquired 534,800 shares from the former chairman of the subsidiary in
exchange for $0.4 million in cash and a promissory note of $6.0 million. The
note was guaranteed by the subsidiary, secured by the ESOP stock and bore
interest, which was payable monthly at 2.7% over the 30-day commercial paper
rate. Principal payments were due in five annual installments of $1.2 million
commencing January 1, 1996. As of December 31, 1997, the entire amount had
been repaid. In January 1995, the ESOP acquired an additional 176,090 shares
at a cost of $1.9 million. Of this amount, $1.8 million was financed through a
promissory note with the remaining $0.1 million paid in cash. This promissory
note was guaranteed by the subsidiary and its former chairman and was due in
84 monthly installments commencing January 1996 with interest at 2.7% over the
30-day commercial paper rate. As of December 31, 1997, the entire amount had
been repaid.
All dividends and contributions received by the ESOP were used to pay debt
service for the period which the ESOP was leveraged. As the debt was repaid,
shares were released and allocated to active participants based on the
proportion of debt service paid in the year. The ESOP was accounted for in
accordance with Statement of Position No. 93-6 "Employers' Accounting for
Employee Stock Ownership Plans." Accordingly, the debt of the ESOP was
recorded as debt in the accompanying consolidated balance sheet, and the
shares that had not been allocated to participants were reported as unearned
ESOP compensation in the equity section on the consolidated balance sheet. As
shares were committed to be released, the Company recorded compensation
expense equal to the then current
46
<PAGE>
SNYDER COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements - (Continued)
market price of the shares committed to be released, and the shares were
treated as outstanding for earnings-per-share (EPS) computations. Dividends on
allocated ESOP shares were recorded as a reduction of retained earnings;
dividends on unallocated ESOP shares were recorded as a reduction of debt and
accrued interest. ESOP compensation expense was $5.4 million and $6.5 million
for 1997 and 1996, respectively. The status of ESOP shares as of December 31
is as follows:
<TABLE>
<CAPTION>
As of December 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Allocated shares..................................................................... 710,890 570,590
Shares released for allocation....................................................... - 140,300
Shares sold.......................................................................... (301,459) -
-------- --------
Total ESOP shares.................................................................... 409,431 710,890
======== ========
</TABLE>
All ESOP shares had been released as of December 31, 1998 and 1997.
Former employees who had terminated employment with the subsidiary prior to
its merger with SNC may, at their option, require the Company to repurchase
their vested shares held by the ESOP for fair value. The balance necessary to
satisfy this repurchase obligation has been classified as Redeemable ESOP
stock in the accompanying consolidated balance sheet with a like amount shown
as a reduction of paid-in capital for each year.
13. Stock Incentive Plan:
In September 1996, the Company adopted the 1996 Stock Incentive Plan (the
"Stock Option Plan"). The Stock Option Plan authorizes the Company to grant
incentive stock options, nonqualified stock options, restricted stock awards
and stock appreciation rights ("SARs"). Subject to adjustment, the aggregate
number of shares of common stock that may be issued under the Stock Option
Plan upon exercise of options, SARs or in the form of restricted stock may not
exceed 17.5% of the number of shares of common stock outstanding.
The exercise price of options granted under the Stock Option Plan may not be
less than 100% (110% in the case of an optionee who is a 10% stockholder) of
the fair market value per share of common stock on the date of the option
grant. The vesting and other provisions of the options are determined by the
Company's Board of Directors. All options granted as of December 31, 1998 vest
on or before the fourth anniversary of the date of grant and expire on or
before the tenth anniversary of the date of grant. In October 1998, the
Company repriced 3,526,900 options to their fair market value at the date of
repricing.
A summary of the activity within the Stock Option Plan, for the three years
ended December 31, 1998, after giving retroactive effect to the conversion of
the Pooled Entities' options, is as follows:
<TABLE>
<CAPTION>
Options Outstanding
-------------------------------------
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
(in thousands)
Beginning of year....................................................... 6,963 5,164 970
Granted............................................................... 11,340 5,749 4,626
Exercised............................................................. (1,012) (1,790) (66)
Forfeited............................................................. (5,231) (2,160) (281)
Expired............................................................... - - (85)
------- ------- ------
End of year............................................................. 12,060 6,963 5,164
======= ======= ======
Exercisable at end of year.............................................. 2,133 1,281 863
======= ======= ======
</TABLE>
47
<PAGE>
SNYDER COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements - (Continued)
<TABLE>
<CAPTION>
Weighted Average Exercise Price
----------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Beginning of year....................................................... $22.58 $14.95 $ 4.88
Granted............................................................... 31.47 24.11 17.05
Exercised............................................................. 20.58 14.10 13.73
Forfeited............................................................. 34.73 20.24 15.65
Expired............................................................... -- -- 15.79
------ ------ ------
End of year............................................................. $26.01 $22.58 $14.95
====== ====== ======
Exercisable at end of year.............................................. $19.68 $17.03 $11.07
====== ====== ======
</TABLE>
The following table presents information related to options outstanding at
December 31, 1998.
<TABLE>
<CAPTION>
Weighted
Average
Number Exercise Contractual
Company Options Issued By of Options Price Life in Years
- -------------------------------------------------- ---------------- ------------------- ----------------
(in thousands)
<S> <C> <C> <C>
SNC prior to initial public offering.............. 1,031 $ 17.00 7.68
SNC subsequent to initial public offering.........
10,417 $19.38 - $43.81 9.11
Pooled Entities................................... 612 $0.01 - $29.59 7.29
----------------
12,060
================
</TABLE>
The fair value of each option grant is estimated on the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1998 and 1997: risk-free interest rate of 5.1%
and 6.2%, expected dividend yield of zero, expected life of 5 years and
expected volatility of 51% and 48%.
The weighted average option fair value on the grant date was $20.60 for
options issued during the year ended December 31, 1998.
If the Company had recorded compensation expense using the fair value based
method prescribed by SFAS No. 123, the Company's 1998 and 1997 pro forma net
income (loss) and 1998 and 1997 pro forma net income (loss) per share amounts,
which reflect a pro forma adjustment for income taxes, would have been reduced
to the following as adjusted amounts:
<TABLE>
<CAPTION>
As of December 31,
---------------------------
1998 1997
------------ ------------
(in thousands except per
share data, unaudited)
<S> <C> <C>
Pro forma net income (loss):
As reported........................................................................ $ 20,145 $(30,791)
As adjusted........................................................................ (13,926) (44,855)
Pro forma basic net income (loss) per share:
As reported........................................................................ 0.29 (0.48)
As adjusted........................................................................ (0.20) (0.70)
Pro forma diluted net income (loss) per share:
As reported........................................................................ 0.28 (0.48)
As adjusted........................................................................ (0.20) (0.70)
</TABLE>
14. Pension and Profit-Sharing Plans:
One of the Company's subsidiaries in the U.K. operates a retirement benefit
plan, which is a funded defined benefit plan available to all employees. The
assets of the plan are held separately from those of the subsidiary and are
invested in managed funds principally comprised of equity securities. Plan
benefits are based on years of service and compensation levels at the time of
retirement. The funding of the plan is determined following consultation with
actuaries using the projected unit credit method.
48
<PAGE>
SNYDER COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements - (Continued)
For purposes of these consolidated financial statements, the actuarial value
of the plan's liabilities has been estimated using the available actuarial
valuations, and the plan's asset values reflect the actual market value of
those assets at each balance sheet date based on records maintained by the
plan's trustees. The most recent actuarial update of the plan's liabilities
was performed as of December 31, 1998. The significant assumptions used and
the funded status of the plan are set out in the tables below.
<TABLE>
<CAPTION>
Significant Assumptions
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Discount rate........................................................... 5.5% 6.75% 8.0%
Expected long-term rate of return on plan assets........................ 8.5 7.75 9.0
Rate of increase in compensation........................................ 4.0 5.25 6.0
</TABLE>
Net Periodic Pension Cost
Net periodic pension cost is determined using the assumptions as of the
beginning of the year and is comprised of the following:
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
(in thousands)
Service cost............................................................ $ 1,375 $ 1,360 $ 1,109
Interest cost on projected benefit obligation........................... 1,177 1,065 875
Expected return on plan assets.......................................... (1,392) (2,899) (1,078)
Net amortization of unrecognized net loss and deferral of actual return
on plan assets......................................................... -- 1,638 125
------- ------- -------
Net periodic pension cost............................................... $ 1,160 $ 1,164 $ 1,031
======= ======= =======
</TABLE>
Funded Status
The funded status is determined using the assumption as of the end of the year
and is reflected as follows:
<TABLE>
<CAPTION>
As of December 31,
------------------------------
1998 1997
-------------- -------------
(in thousands)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year............................................ $17,502 $13,931
Service cost....................................................................... 1,375 1,360
Interest cost...................................................................... 1,177 1,065
Plan participants' contributions................................................... 646 590
Actuarial gain..................................................................... 1,143 1,195
Benefits paid...................................................................... (464) (639)
------- -------
Benefit obligation at end of year.................................................. $21,379 $17,502
======= =======
Change in plan assets:
Fair value of plan assets at beginning of year..................................... $17,321 $13,777
Actual return on plan assets....................................................... 2,913 2,430
Employee contribution.............................................................. 646 590
Employer contribution.............................................................. 1,342 1,163
Benefits paid...................................................................... (464) (639)
------- -------
Fair value of plan assets at end of year........................................... $21,758 $17,321
======= =======
</TABLE>
The Company and certain of its subsidiaries maintain defined contribution
benefit plans. Pension and
49
<PAGE>
SNYDER COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements - (Continued)
profit sharing costs related to these plans amounted to approximately $2.4
million, $1.5 million, and $1.2 million for 1998, 1997 and 1996, respectively.
15. Net Income Per Share:
A reconciliation of the shares used to compute basic and diluted earnings per
share follows. For each of the years presented, the same net income used to
compute basic earnings per share was used to compute diluted earnings per
share.
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1998 1997 1996
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Weighted average shares outstanding for the period used in computation
of basic net income per share.......................................... 69,587 63,752 59,194
Diluted impact of stock options and other dilutive securities........... 2,425 -- 798
------ ------ ------
Shares used in computation of diluted net income per share.............. 72,012 63,752 59,992
====== ====== ======
</TABLE>
For the years ended December 31, 1998 and 1997, there existed weighted average
common stock equivalents of 542,897 and 1,807,903, respectively, which are not
included in the calculation of diluted net income per share because they were
antidilutive for the period.
16. Discontinued Operations:
On October 24, 1997, the Board of Directors of one of the Company's 1998
acquirees approved the spin-off of its sports management operations, which
were carried on by Bob Woolf Associates, Inc. ("BWA"), a wholly owned
subsidiary. The acquiree purchased BWA in May 1996. The spin-off was executed
in the form of a dividend to the acquiree's stockholders of record on October
31, 1997, whereby each stockholder received one share of BWA for each share of
the acquiree's common stock held.
The net losses of BWA prior to October 31, 1997, are included in the
accompanying consolidated statement of income under "discontinued operations"
and represent a net loss of $0.02 and $0.03 per diluted share for 1997 and
1996. Revenues from BWA were approximately $0.3 million for the period from
May 1, 1996 (date of BWA acquisition) to December 31, 1996, and approximately
$2.0 million for the ten months ended October 31, 1997.
17. Leases:
The Company leases certain facilities, office equipment and other assets. The
following is a schedule of future minimum lease payments for capital leases
and for operating leases with initial or remaining terms in excess of one year
at December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Years Ending December 31, Capital Leases Operating Leases
- --------------------------------------------------------------- ------------------ ------------------
<S> <C> <C>
1999......................................................... $ 2,034 $ 23,113
2000......................................................... 970 19,006
2001......................................................... 351 15,723
2002......................................................... 301 11,351
2003......................................................... 171 7,964
Thereafter................................................... 5 26,793
------- --------
Total minimum lease payments................................. 3,832 $103,950
------- ========
Less: Amount representing interest.......................... (376)
-------
Total obligation under capital leases........................ 3,456
Less: Current portion....................................... (1,706)
-------
Long-term portion............................................ $ 1,750
=======
</TABLE>
50
<PAGE>
SNYDER COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements - (Continued)
Property and equipment, net, on the consolidated balance sheet includes $3.8
million for equipment purchased under capital leases as of December 31, 1998
and 1997.
Rental expense for all operating leases was approximately $24.3 million, $23.1
million and $21.8 million for the years ended December 31, 1998, 1997 and
1996, respectively.
18. Commitments and Contingencies:
The Company has entered into employment agreements with certain key executives
and consulting agreements with certain former executives that call for
guaranteed minimum salaries and bonuses for varying terms.
One of the Company's U.S. subsidiaries has standby letters of credit with a
bank, secured by compensating balance arrangements, totaling $6.0 million.
The standby letters of credit renew annually and interest is charged at a rate
of 1.25% per year.
The Company is subject to lawsuits, investigations and claims arising out of
the conduct of its business, including those related to commercial
transactions, contracts, government regulation and employment matters. Certain
claims, suits and complaints have been filed or are pending against the
Company. In the opinion of management and legal counsel, all matters are
without merit or are of such kind, or involve such amounts, as would not have
a material effect on the financial position or results of operations of the
Company if disposed of unfavorably.
19. Related Parties:
The Company's headquarters office space is leased from a third party, in which
one of the nonemployee directors of the Company has a minority ownership
interest. Rent paid under this lease was $1.1 million, $2.4 million and $1.1
million in 1998, 1997 and 1996, respectively.
The Company produces a WallBoard(R) for which a publication beneficially owned
by certain nonemployee directors of the Company is one of the sponsors.
Revenues earned under this program were $2.0 million in 1997.
In December 1997, the Company entered into a software license agreement with a
company in which certain nonemployee directors of the Company are directors
and in which they own a minority interest. The Company paid approximately $2.5
million for the license and related equipment.
20. Segment Information:
The Company provides sales and marketing solutions for its clients and strives
to integrate its service capabilities within as well as across its three
operating groups: Direct Services, Healthcare Services and Creative Services.
Direct Services provides services centered on marketing and sales programs
designed to reach certain, sometimes targeted, consumer groups through
strategic planning and consulting services, proprietary sampling programs,
field sales, teleservices, database mailings, information displays and
interactive services. Healthcare Services focuses on providing outsourced
pharmaceutical detailing, sales force training, marketing plan design and
evaluation services and healthcare educational, marketing and publishing
services. Creative Services establishes brand
51
<PAGE>
SNYDER COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements - (Continued)
awareness for clients through advertising, creative design, public relations,
media placement and interactive services.
The accounting policies of the operating groups are the same as those
described in the Summary of Significant Accounting Policies (Note 3). The
Company primarily evaluates performance based on earnings before interest and
taxes (EBIT) from the combined subsidiaries in each operating group, excluding
nonrecurring acquisition and related costs, compensation to stockholders, ESOP
expense and recapitalization costs. Sales between operating groups are
accounted for at fair value as if the sales were to third parties. All
activity between operating groups has been eliminated with respect to revenue
and EBIT.
The Company's operating groups are strategic business units that offer
different services. They are managed separately because each business
requires different marketing, service and pricing strategies. The operating
groups are primarily an aggregate of businesses acquired as separate units
over the course of time.
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Revenues:
Direct Services....................................................... $386,333 $319,339 $281,789
Healthcare Services................................................... 321,660 208,960 144,710
Creative Services..................................................... 107,310 83,740 67,428
-------- -------- --------
Total......................................................... $815,303 $612,039 $493,927
-------- -------- --------
EBIT:
Direct Services....................................................... $ 76,492 $ 43,192 $ 37,716
Healthcare Services................................................... 42,483 19,829 15,371
Creative Services..................................................... 12,790 2,082 3,921
Corporate and other................................................... (14,880) (9,468) (8,461)
-------- -------- --------
Total......................................................... $116,885 $ 55,635 $ 48,547
-------- -------- --------
Total Assets:
Direct Services....................................................... $291,343 $187,118 $175,355
Healthcare Services................................................... 204,942 105,276 51,180
Creative Services..................................................... 189,804 111,121 83,838
Corporate and other................................................... 9,571 48,831 9,257
-------- -------- --------
Total......................................................... $695,660 $452,346 $319,630
-------- -------- --------
Geographic Information:
Revenues:
United States......................................................... $511,465 $415,067 $338,571
United Kingdom........................................................ 204,247 145,507 119,169
Western Europe........................................................ 91,957 47,572 33,854
Other................................................................. 7,634 3,893 2,333
-------- -------- --------
Total......................................................... $815,303 $612,039 $493,927
-------- -------- --------
Reconciliation of EBIT to Income (Loss) from Operations:
Total EBIT for operating groups....................................... $116,885 $ 55,635 $ 48,547
Compensation to stockholders.......................................... (1,315) (28,060) (17,279)
ESOP expense.......................................................... -- (5,411) (6,553)
Recapitalization costs................................................ -- (1,889) --
Acquisition and related costs......................................... (65,863) (39,430) --
-------- -------- --------
Income (loss) from operations......................................... $ 49,707 $(19,155) $ 24,715
-------- -------- --------
</TABLE>
52
<PAGE>
SNYDER COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements - (Continued)
21. Selected Quarterly Financial Data (unaudited, in thousands, except per share
data):
The following table summarizes financial data by quarter for the Company for
1998 and 1997, giving effect to the Acquisitions as if they had occurred at
the beginning of the earliest period presented.
<TABLE>
<CAPTION>
1998 Quarter Ended
--------------------------------------------------------------------------
March 31 June 30 September 30 December 31 Total
------------ ------------ -------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues............................................ $176,940 $202,562 $209,818 $225,983 $815,303
Gross profit........................................ 58,680 66,673 65,112 70,781 261,246
Net income (loss)................................... (8,628) 17,794 10,664 2,976 22,806
Net income (loss) per share (diluted) (a)........... (0.13) 0.25 0.15 0.04 0.32
Pro forma net income (loss)......................... (10,624) 17,391 10,182 3,196 20,145
Pro forma net income (loss) per share (diluted) (a). (0.16) 0.24 0.14 0.04 0.28
Pro forma net income, excluding nonrecurring
acquisition and related costs and compensation to
stockholders....................................... 14,919 17,676 19,109 21,645 73,349
Pro forma net income, excluding nonrecurring
acquisition costs and compensation to stockholders
per share (diluted)................................ 0.21 0.25 0.26 0.30 1.02
<CAPTION>
1997 Quarter Ended
--------------------------------------------------------------------------
March 31 June 30 September 30 December 31 Total
------------ ------------ -------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues............................................ $135,795 $148,027 $152,859 $175,358 $612,039
Gross profit........................................ 41,148 46,372 45,860 48,414 181,794
Income (loss) from continuing operations............ (9,117) 9,272 (18,393) (7,116) (25,354)
Income (loss) from continuing operations per share
(diluted) (a)....................................... (0.15) 0.14 (0.29) (0.11) (0.40)
Net income (loss)................................... (9,675) 8,649 (18,692) (7,143) (26,861)
Net income (loss) per share (diluted) (a)........... (0.15) 0.13 (0.30) (0.11) (0.42)
Pro forma net income (loss) from continuing
operations......................................... (10,440) 7,591 (18,236) (8,806) (29,891)
Pro forma net income (loss) from continuing
operations per share (diluted)..................... (0.17) 0.12 (0.29) (0.13) (0.47)
Pro forma net income (loss)......................... (10,773) 7,219 (18,415) (8,822) (30,791)
Pro forma net income (loss) per share (diluted)..... (0.17) 0.11 (0.29) (0.13) (0.48)
Pro forma net income from continuing operations,
excluding nonrecurring acquisition and related
costs, ESOP expense, recapitalization costs and
compensation to stockholders....................... 7,532 9,637 9,046 4,820 31,035
Pro forma net income from continuing operations,
excluding nonrecurring acquisition and related
costs, ESOP expense, recapitalization costs and
compensation to stockholders per share
(diluted) (a)....................................... 0.12 0.15 0.14 0.07 0.47
</TABLE>
The pro forma amounts include a provision for federal and state income taxes
as if the Company had been a taxable C corporation for all periods presented.
(a) The sum of these amounts does not equal the annual amount because the
quarterly calculations are based on varying numbers of shares outstanding.
53
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Brann Holdings Limited:
We have audited the consolidated balance sheets of Brann Holdings Limited (the
Company) and its subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996 (not
presented separately herein). These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United Kingdom, which do not differ in any material respect
from generally accepted auditing standards in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements audited by us present
fairly, in all material respects, the financial position of the Company and its
subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles in
the United States.
Price Waterhouse
Chartered Accountants and Registered Auditors
Bristol, England
May 30, 1997
54
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
American List Corporation
We have audited the consolidated balance sheet of American List Corporation
and Subsidiaries as of February 28, 1997, and the related consolidated
statements of earnings, stockholders' equity and cash flows for the year then
ended (not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American List
Corporation and Subsidiaries as of February 28, 1997, and the consolidated
results of their operations and their consolidated cash flows for the year then
ended in conformity with generally accepted accounting principles.
Grant Thornton LLP
Melville, New York
April 11, 1997
55
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Snyder Communications, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Snyder Communications, Inc. included in
this Form 10-K filing and have issued our report thereon dated February 3, 1999.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II Valuation and
Qualifying Accounts included in this Form 10-K is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion based on our audits and the reports of other
auditors, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
February 3, 1999
56
<PAGE>
SNYDER COMMUNICATIONS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Additions Charged Deductions from Reserve Balance at
Beginning to Cost and for Purpose for which Translation End of Year
of Year Expense Reserve was Created Adjustment
----------- ----------------- -------------------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1998 allowance for doubtful
accounts 7,817 3,482 1,395 98 10,002
1997 allowance for doubtful
accounts 2,512 6,868 1,686 123 7,817
1996 allowance for doubtful
accounts 1,757 1,177 482 59 2,512
<CAPTION>
Balance at Additions Charged Deductions from Reserve Balance at
Beginning to Cost and for Purpose for which Translation End of Year
of Year Expense Reserve was Created Adjustment
----------- ----------------- -------------------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1998 accrual for integration
activities -- 13,279 2,988 -- 10,291
1997 accrual for integration
activities -- -- -- -- --
1996 accrual for integration
activities -- -- -- -- --
</TABLE>
57
<PAGE>
Item 9. Changes and Disagreements with Accountants on Accounting and Financial
Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The information contained in the Company's Proxy Statement under the sections
titled "Election of Directors (Proposal 1)" and "Section 16(a) Beneficial
Ownership Reporting Compliance" is incorporated herein by reference in response
to this item.
Item 11. Executive Compensation
The information contained in the Company's Proxy Statement under the section
titled "Executive Compensation" is incorporated herein by reference in response
to this item, except that the information contained in the Proxy Statement under
the sub-headings "Report of the Board of Directors of Snyder Communications,
Inc. on Executive Compensation" and "Stockholder Return Performance Graph" is
not incorporated herein by reference and is not to be deemed "filed" as part of
this filing.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained in the Company's Proxy Statement under the section
titled "Security Ownership of Directors, Executive Officers and Certain
Beneficial Owners" is incorporated herein by reference in response to this item.
Item 13. Certain Relationships and Related Transactions
The information in the Company's Proxy Statement under the section titled
"Compensation Committee Interlocks and Insider Participation" is incorporated
herein by reference in response to this item.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. The following Consolidated Financial Statements of Snyder
Communications, Inc. are filed under "Item 8. Financial Statements and
Supplementary Data."
Consolidated Balance Sheet as of December 31, 1998 and 1997
Consolidated Statement of Income for the years ended December 31, 1998,
1997 and 1996
Consolidated Statement of Equity for the years ended December 31, 1998,
1997 and 1996
Consolidated Statement of Cash Flows for the years ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
2. The following financial statement schedule is filed under "Item 8.
Financial Statements and Supplementary Data."
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or are
not required under Regulation S-X.
58
<PAGE>
3. The following exhibits are filed herewith or are incorporated herein by
reference, as indicated.
<TABLE>
<CAPTION>
Exhibit Description Page
- ------------- -------------------------------------------------------------------------------------- -------
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated as of March 18, 1997, among American List
Corporation, the Company and Snyder Z Acquisition, Inc. (Incorporated by reference to
Exhibit 2.1 to the Company's Form 8-K dated July 11, 1997).
2.2 Agreement and Plan of Merger among Brann Holdings Limited and the Company, dated as
of March 18, 1997 (Incorporated by reference to Exhibit 2.1 to the Company's Form 8-K
dated March 18, 1997).
2.3 Agreement and Plan of Merger among MMD, Inc., the stockholders of MMD, Inc., the
Company, and Snyder Acquisition Corp., dated as of January 6, 1997 (Incorporated by
reference to Exhibit 2.1 to the Company's Form 8-K dated January 6, 1997).
2.4 Share Sale and Purchase Agreement among the Shareholders of Bounty Group Limited as
listed on the signature page thereto and the Company, dated as of July 13, 1997
(Incorporated by reference to Exhibit 2.1 to the Company's Form 8-K dated July 13,
1997).
2.5 Agreement and Plan of Merger among Sampling Corporation of America, the Company and
Snyder Acquisition Corp., dated as of July 14, 1997 (Incorporated by reference to
Exhibit 2.2 to the Company's Form 8-K dated July 14, 1997).
2.6 Agreement and Plan of Merger, dated as of March 25, 1998, by and among the Company,
Snyder AR Acquisition, LLC, Arnold Communications, Inc. and the Stockholders of
Arnold Communications, Inc. (Incorporated by reference to Exhibit 2.1 to the
Company's Form 8-K dated March 25, 1998).
2.7 Agreement and Plan of Merger, dated as of August 26, 1998, by and among the Company,
Synder CC Acquisition, Inc. and Clinical Communications Group, Inc. (Incorporated by
reference to Exhibit 2.1 to the Company's Form 8-K dated August 31, 1998).
3.1 Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1
forming a part of the Company's Registration Statement on Form S-1 (File No.
333-7495) filed with the Securities and Exchange Commission under the Securities Act
of 1933, as amended).
3.2 Bylaws of the Company, as amended.
4.1 Reference is made to exhibits 3.1 and 3.2.
4.2 Specimen common stock certificate (Incorporated by reference to Exhibit 4.2 forming a
part of Amendment No. 5 to the Company's Registration Statement on Form S-1 (File No.
333-7495) filed with the Securities and Exchange Commission under the Securities Act
of 1933, as amended).
10.1* Amended and Restated 1996 Stock Incentive Plan of Snyder Communications, Inc.
(Incorporated by reference to Exhibit No. 10.1 forming a part of the Company's
Registration Statement on Form S-1 (File No. 333-33691) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended).
10.2 Professional Services Agreement, dated February 1996, as amended, between the Company
and AT&T Communications Inc. (Incorporated by reference to Exhibit 10.2 forming a
part of Amendment No. 1 to the Company's Registration Statement on Form S-1 (File No.
333-7495) filed with the Securities and Exchange Commission under the Securities Act
of 1933, as amended).
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description Page
------- ----------- ----
<S> <C> <C>
10.3 Services Agreement between the Company and U.S. News & World Report, L.P.
(Incorporated by reference to Exhibit 10.4 forming a part of Amendment No. 1 to the
Company's Registration Statement on Form S-1 (File No. 333-7495) filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended).
10.4 Registration Rights Agreement, dated September 4, 1996, between the Company and
Daniel M. Snyder, Michele D. Snyder, USN College Marketing, L.P. and each of the 1995
Investors (as defined therein) (Incorporated by reference to Exhibit 10.5 forming a
part of Amendment No. 5 to the Company's Registration Statement on Form S-1(File No.
333-7495) filed with the Securities and Exchange Commission under the Securities Act
of 1933, as amended).
10.5 Lease Agreement, Democracy Center, Bethesda, Maryland, dated March 19, 1996, as
amended, between the Company and Democracy Associates Limited Partnership
(Incorporated by reference to Exhibit 10.6 forming a part of Amendment No. 5 to the
Company's Registration Statement on Form S-1 (File No. 333-7495) filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended).
10.6* Employment Agreement between the Company and Daniel M. Snyder (Incorporated by
reference to Exhibit 10.7 forming a part of Amendment No. 1 to the Company's
Registration Statement on Form S-1 (File No. 333-7495) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended).
10.7* Employment Agreement between the Company and Michele D. Snyder (Incorporated by
reference to Exhibit 10.8 forming a part of Amendment No. 1 to the Company's
Registration Statement on Form S-1 (File No. 333-7495) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended).
10.8* Employment Agreement between the Company and A. Clayton Perfall (Incorporated by
reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1 (File
No. 333-33691) filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended).
21 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Grant Thornton LLP.
23.3 Consent of Price Waterhouse.
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
Form 8-K/A dated August 31, 1998
Current Report on Form 8-K, dated October 1, 1998
Current Report on Form 8-K, dated October 31, 1998
- ---------------
* Indicates management contract or compensatory plan
60
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SNYDER COMMUNICATIONS, INC.
(Registrant)
DANIEL M. SNYDER
By /s/__________________________
Daniel M. Snyder
Chairman and Chief Executive Officer
MARCH 31, 1999
Date:___________________________
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
MARCH 31, 1999 DANIEL M. SNYDER
Date:_______________ /s/_____________________________
Daniel M. Snyder
Chairman and Chief Executive Officer
MARCH 31, 1999 MICHELE D. SNYDER
Date:_______________ /s/______________________________
Michele D. Snyder
Vice Chairman, President and
Chief Operating Officer
MARCH 31, 1999 A. CLAYTON PERFALL
Date:_______________ /s/______________________________
A. Clayton Perfall
Chief Financial Officer and Director
(Principal Financial Officer)
MARCH 31, 1999 DAVID B. PAUKEN
Date:_______________ /s/______________________________
David B. Pauken
Chief Accounting Officer
(Principal Accounting Officer)
MARCH 31, 1999 MORTIMER B. ZUCKERMAN
Date:_______________ /s/______________________________
Mortimer B. Zuckerman
Director
MARCH 31, 1999 FRED DRASNER
Date:_______________ /s/______________________________
Fred Drasner
Director
MARCH 31, 1999 MARK E. JENNINGS
Date:_______________ /s/______________________________
Mark E. Jennings
Director
MARCH 31, 1999 PHILIP GUARASCIO
Date:_______________ /s/______________________________
Philip Guarascio
Director
61
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
2.1 Agreement and Plan of Merger, dated as of March 18, 1997, among American List
Corporation, the Company and Snyder Z Acquisition, Inc. (Incorporated by reference to
Exhibit 2.1 to the Company's Form 8-K dated July 11, 1997).
2.2 Agreement and Plan of Merger among Brann Holdings Limited and the Company, dated as
of March 18, 1997 (Incorporated by reference to Exhibit 2.1 to the Company's Form 8-K
dated March 18, 1997).
2.3 Agreement and Plan of Merger among MMD, Inc., the stockholders of MMD, Inc., the
Company, and Snyder Acquisition Corp., dated as of January 6, 1997 (Incorporated by
reference to Exhibit 2.1 to the Company's Form 8-K dated January 6, 1997).
2.4 Share Sale and Purchase Agreement among the Shareholders of Bounty Group Limited as
listed on the signature page thereto and the Company, dated as of July 13, 1997
(Incorporated by reference to Exhibit 2.1 to the Company's Form 8-K dated July 13,
1997).
2.5 Agreement and Plan of Merger among Sampling Corporation of America, the Company and
Snyder Acquisition Corp., dated as of July 14, 1997 (Incorporated by reference to
Exhibit 2.2 to the Company's Form 8-K dated July 14, 1997).
2.6 Agreement and Plan of Merger, dated as of March 25, 1998, by and among the Company,
Snyder AR Acquisition, LLC, Arnold Communications, Inc. and the Stockholders of Arnold
Communications, Inc. (Incorporated by reference to Exhibit 2.1 to the Company's Form 8-K
dated March 25, 1998).
2.7 Agreement and Plan of Merger, dated as of August 26, 1998, by and among the Company,
Snyder CC Acquisition, Inc. and Clinical Communications Group, Inc. (Incorporated by
refernce to Exhibit 2.1 to the Company's Form 8-K dated August 31, 1998).
3.1 Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1
forming a part of the Company's Registration Statement on Form S-1 (File No.
333-7495) filed with the Securities and Exchange Commission under the Securities Act
of 1933, as amended).
3.2 Bylaws of the Company, as amended.
4.1 Reference is made to exhibits 3.1 and 3.2.
4.2 Specimen common stock certificate (Incorporated by reference to Exhibit 4.2 forming a
part of Amendment No. 5 to the Company's Registration Statement on Form S-1 (File No.
333-7495) filed with the Securities and Exchange Commission under the Securities Act
of 1933, as amended).
10.1* Amended and Restated 1996 Stock Incentive Plan of Snyder Communications, Inc.
(Incorporated by reference to Exhibit No. 10.1 forming a part of the Company's
Registration Statement on Form S-1 (File No. 333-33691) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended).
10.2 Professional Services Agreement, dated February 1996, as amended, between the Company
and AT&T Communications Inc. (Incorporated by reference to Exhibit 10.2 forming a
part of Amendment No. 1 to the Company's Registration Statement on Form S-1 (File No.
333-7495) filed with the Securities and Exchange Commission under the Securities Act
of 1933, as amended).
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
10.3 Services Agreement between the Company and U.S. News & World Report, L.P.
(Incorporated by reference to Exhibit 10.4 forming a part of Amendment No. 1 to the
Company's Registration Statement on Form S-1 (File No. 333-7495) filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended).
10.4 Registration Rights Agreement, dated September 4, 1996, between the Company and
Daniel M. Snyder, Michele D. Snyder, USN College Marketing, L.P. and each of the 1995
Investors (as defined therein) (Incorporated by reference to Exhibit 10.5 forming a
part of Amendment No. 5 to the Company's Registration Statement on Form S-1(File No.
333-7495) filed with the Securities and Exchange Commission under the Securities Act
of 1933, as amended).
10.5 Lease Agreement, Democracy Center, Bethesda, Maryland, dated March 19, 1996, as
amended, between the Company and Democracy Associates Limited Partnership
(Incorporated by reference to Exhibit 10.6 forming a part of Amendment No. 5 to the
Company's Registration Statement on Form S-1 (File No. 333-7495) filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended).
10.6* Employment Agreement between the Company and Daniel M. Snyder (Incorporated by
reference to Exhibit 10.7 forming a part of Amendment No. 1 to the Company's
Registration Statement on Form S-1 (File No. 333-7495) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended).
10.7* Employment Agreement between the Company and Michele D. Snyder (Incorporated by
reference to Exhibit 10.8 forming a part of Amendment No. 1 to the Company's
Registration Statement on Form S-1 (File No. 333-7495) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended).
10.8* Employment Agreement between the Company and A. Clayton Perfall (Incorporated by
reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1 (File
No. 333-33691) filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended).
21 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Grant Thornton LLP.
23.3 Consent of Price Waterhouse.
27 Financial Data Schedule.
</TABLE>
- ---------------
* Indicates management contract or compensatory plan
63
<PAGE>
Exhibit 3.2
B Y L A W S
OF
SNYDER COMMUNICATIONS, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
shall be at 1013 Centre Road, in the City of Wilmington, County of New Castle,
State of Delaware. The registered agent of the corporation at such address is
Corporation Service Company.
Section 2. Other Offices. The Corporation may also have offices,
including its principal office, at such other places both within and without the
State of Delaware as the board of directors may from time to time determine or
the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders shall be
held at such places either within or without the State of Delaware as shall be
designated from time to time by the board of directors and stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The annual meeting of stockholders for the
election of directors and the transaction of other business as may properly come
before the meeting shall be held in each year at such date and time as shall be
designated from time to time by the board of directors and stated in the notice
of the meeting.
Section 3. Notice of Annual Meetings. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting, not less than ten nor more than
sixty days before the date of the meeting. If mailed, such notice shall be
deemed to have been given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address as it appears on the records
of the Corporation.
Section 4. List of Stockholders. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of
<PAGE>
each stockholder. The list shall be arranged by voting group and within each
voting group by class or series of shares. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the meeting during the whole time thereof, and may be inspected by any
stockholder who is present at such meeting.
Section 5. Special Meetings. Special meetings of the stockholders for any
purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the president or by the board of
directors and shall also be called by the secretary at the request in writing of
the holders of, in the aggregate, not less than 25% of the outstanding shares of
the Corporation entitled to vote at such meeting, or of the board of directors.
Such request shall state the purpose or purposes of the proposed meeting.
Section 6. Notice of Special Meetings. Written notice of a special
meeting stating the place, date and hour of the meeting, and the purpose or
purposes for which the meeting is called, shall be given not less than ten nor
more than sixty days before the date of the meeting, to each stockholder
entitled to vote at such meeting.
Section 7. Business of Special Meetings. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice.
Section 8. Quorum. The holders of at least a majority of the stock issued
and outstanding and entitled to vote at any meeting of the stockholders, present
in person or represented by proxy, shall constitute a quorum at all meetings of
the stockholders for the transaction of business except as otherwise provided by
statute or by the certificate of incorporation. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time, without
notice other than announcement at the meeting of the time and place of the
adjourned meeting, until a quorum shall be present or represented. At such
adjourned meeting, at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the original
meeting. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. Vote Required for Action. When a quorum is present at any
meeting, the affirmative vote of the majority of shares present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
shall be the act of the stockholders.
Section 10. Voting Rights. Except as otherwise provided in the certificate
of incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of stock having voting
power held by such stockholder, but no proxy shall be voted or acted upon after
three years from its date, unless the proxy provides for a longer period.
-2-
<PAGE>
ARTICLE III
DIRECTORS
Section 1. Number Constituting Entire Board; Election. The number of
directors which shall constitute the whole board shall be not less than one (1)
nor more than nine (9). Within such limits the actual number of directors which
shall constitute the whole board shall be as fixed from time to time by the
board of directors. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 3 of this Article and except that
the initial director of the Corporation was appointed by the incorporator of the
Corporation, and each director elected shall hold office until his successor is
elected and qualified or until his earlier resignation or removal. Directors
need not be stockholders.
Section 2. Resignation and Removal. Any director may resign at any time
upon written notice to the Corporation. Any director may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors.
Section 3. Filling of Vacancies. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
and any vacancies on the Board resulting from death, resignation,
disqualification, removal or other cause shall be filled by the affirmative vote
of a majority of the remaining directors then in office, though less than a
quorum, or by a sole remaining director, and the directors so chosen shall hold
office until the next annual election and until their successors are duly
elected and shall qualify, or until their earlier resignation or removal. If
there are no directors in office, then an election of directors may be held in
the manner provided by statute. No decrease in the number of directors
constituting the Board shall shorten the term of any incumbent director.
Section 4. Management by Directors. The business and affairs of the
Corporation shall be managed by its board of directors, which may exercise all
such powers of the Corporation and do all such lawful acts and things as are not
by statute or by the certificate of incorporation or by these bylaws directed or
required to be exercised or done by the stockholders.
Section 5. Place of Meetings. The board of directors of the Corporation
may hold meetings, both regular and special, either within or outside the State
of Delaware.
Section 6. Annual Meeting. The annual meeting of the board of directors
shall be held immediately after the annual meeting of stockholders and at the
same place, and no notice of such meeting shall be necessary in order legally to
constitute the meeting, provided a quorum shall be present. In the event such
meeting is not held at that time and place, the meeting may be held at such time
and place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 7. Regular Meetings. Regular meetings of the board of directors
may be held without other notice at such time and at such place as shall from
time to time be determined by the board.
-3-
<PAGE>
Section 8. Special Meetings. Special meetings of the board may be called
by the president on one day's notice to each director, either personally or by
mail, facsimile, telegram or express courier; special meetings shall be called
by the president or secretary in like manner and on like notice on the written
request of a majority of the directors.
Section 9. Quorum; Vote Required for Action. At all meetings of the board
or any committee, a majority of the total number of directors of the board or
such committee shall constitute a quorum for the transaction of business and the
act of a majority of the directors of the board or committee present at any
meeting at which there is a quorum shall be the act of the board of directors or
the applicable committee, except as may be otherwise specifically provided by
statute or by the certificate of incorporation. If a quorum shall not be
present at any meeting of the board of directors or any committee, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting of the time and place of the adjourned meeting,
until a quorum shall be present.
Section 10. Participation By Conference Telephone. Members of the board of
directors, or any committee thereof, may participate in a meeting of the board
or any committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this subsection shall
constitute presence in person at such meeting.
Section 11. Action Without Meeting. Unless otherwise restricted by the
certificate of incorporation or these bylaws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting, if all members of the board or such committee
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or such committee.
Section 12. Compensation. The directors may be paid their expenses, if
any, of attendance at each meeting of the board of directors and may be paid a
fixed sum for attendance at each meeting of the board of directors and/or a
stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of standing or special committees may be allowed like
compensation for attending committee meetings.
Section 13. Committees. The board of directors may, by resolution passed
by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. Any such committee, to the extent provided in the resolution, and
subject to any restrictions imposed by statute, shall have and may exercise the
powers of the board of directors in the management of the business and affairs
of the Corporation, and may authorize the seal of the Corporation to be affixed
to all papers which may require it; provided, however, that in the absence or
disqualification of any member of such committee or committees, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he, she or they constitute a quorum, may unanimously appoint another
member of the board of directors to act at the meeting in the place of any such
absent or disqualified member. Such
-4-
<PAGE>
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors.
Section 14. Minutes of Committee Meetings. Each committee shall keep
regular minutes of its meetings and report the same to the board of directors
when required.
ARTICLE IV
NOTICES
Section 1. Manner of Giving Notice. Whenever, under the provisions of the
statutes or of the certificate of incorporation or of these bylaws, notice is
required to be given to any director or stockholder, it shall not be construed
to require personal notice, but such notice may be given in writing, by mail,
addressed to such director or stockholder, at his address as it appears on the
records of the Corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the United
States mail. Notice may also be given by telegram, express courier, or
facsimile.
Section 2. Waiver of Notice. Whenever any notice is required to be given
under the provisions of the statutes or of the certificate of incorporation or
of these bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent to notice. Attendance of a person at a meeting of
stockholders, directors, or members of a committee of directors, shall
constitute a waiver of notice of such meeting, except when the stockholder,
director or committee member attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the certificate
of incorporation or these bylaws.
ARTICLE V
OFFICERS
Section 1. Required Officers. The officers of the Corporation shall be
chosen by the board of directors and shall include a president, a treasurer, and
a secretary. Any number of offices may be held by the same person unless the
certificate of incorporation or these bylaws otherwise provide.
Section 2. Additional Officers. The board of directors may appoint one or
more vice presidents and such other officers and agents as it shall deem
necessary, including but not limited to a chief executive officer, chief
operating officer and a chief financial officer, who shall hold their offices
for such terms and shall exercise such powers and perform such duties as shall
be determined from time to time by the board.
-5-
<PAGE>
Section 3. Election of Officers. The board of directors at its first
meeting after each annual meeting of stockholders shall choose the officers of
the Corporation, except that the first officers of the Corporation shall be
chosen by the initial director at the organizational meeting of the board of
directors following incorporation.
Section 4. Compensation. The salaries of all officers and agents of the
Corporation shall be fixed by or in the manner prescribed by the board of
directors.
Section 5. Tenure. Each officer of the Corporation shall hold office
until his successor is elected and qualified or until his earlier resignation or
removal. Any officer elected or appointed by the board of directors may be
removed at any time by the affirmative vote of a majority of the total number of
directors. Any officer may resign at any time upon written notice to the
Corporation. Any vacancy occurring in any office of the Corporation shall be
filled by or in the manner prescribed by the board of directors.
Section 6. Chief Executive Officer. The chief executive officer shall be
the chief executive officer of the Corporation and shall have general and active
supervision and management of the business of the Corporation. The chief
executive officer may sign, on behalf of the Corporation, certificates for
shares of the Corporation, any deeds, mortgages, bonds, contracts or other
instruments which the board of directors has authorized to be executed, except
in cases where the signing and execution thereof shall be expressly delegated by
the board of directors or by these bylaws to some other officer or agent of the
Corporation, or shall be required by law to be otherwise signed or executed,
and, in general, shall perform all duties incident to the office of chief
executive officer and such other duties as may be prescribed by the board of
directors from time to time.
Section 7. Chief Operating Officer. In the absence of the chief executive
officer, if any, or as may be agreed between the chief executive officer and the
chief operating officer, the chief operating officer shall perform the duties of
the chief executive officer, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the chief executive officer. The
chief operating officer shall generally assist the chief executive officer and
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
Section 8. President. The president shall have those duties as
the board of directors may from time to time establish.
Section 9. Chief Financial Officer. The Chief Financial Officer shall
have those duties as the board of directors may from time to time establish.
Section 10. Vice President. In the absence of the chief executive officer,
if any, the chief operating officer, the president, the vice president, if any,
or in the event there be more than one vice president, the vice presidents in
the order designated, or in the absence of any designation, then in the order of
their election, shall perform the duties of the president, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
president. The vice president shall generally assist the president and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
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<PAGE>
Section 11. Secretary. The secretary shall attend all meetings of the
board of directors and all meetings of the stockholders and shall record all the
proceedings of the meetings of the stockholders and of the board of directors in
a book to be kept for that purpose, and shall perform like duties for the
standing committees when requested by such committees. The secretary shall
give, or cause to be given, required notice of all meetings of the stockholders
and the board of directors, and shall perform such other duties as may be
prescribed by the board of directors. The secretary shall have custody of the
stock certificate books and stockholder records and such other books and records
as the board of directors may direct. The secretary shall have custody of the
corporate seal of the Corporation and shall have authority to affix the same to
any instrument requiring it and when so affixed, it may be attested by the
secretary's signature. The board of directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing
thereof by his signature.
Section 12. Treasurer. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the board of
directors and shall disburse the funds of the Corporation as may be ordered by
the board of directors, taking proper vouchers for such disbursements, and shall
render to the president and the board of directors, at its regular meetings, or
when the board of directors so requires, an account of all his transactions as
treasurer and of the financial condition of the Corporation and shall perform
such other duties and have such other powers as the board of directors or
president may from time to time prescribe.
ARTICLE VI
CERTIFICATES OF STOCK; STOCK TRANSFERS; RECORD DATE
Section 1. Certificates. Every holder of stock in the Corporation shall
be entitled to have a certificate signed by, or in the name of, the Corporation
by the chairman of the board of directors or the president or any vice
president designated by the board of directors, and by the treasurer or the
secretary certifying the number of shares owned by him in the Corporation. If
the Corporation is authorized to issue different classes of shares or different
series within a class, the designations, relative rights, preferences, and
limitations applicable to each class and the variations in rights, preferences,
and limitations determined for each series (and by the authority of the board of
directors to determine variations for future series) shall be summarized on the
front or back of each certificate of shares of such class or series.
Alternatively, each certificate may state conspicuously on its front or back
that the Corporation will furnish the stockholder this information on request in
writing and without charge. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the person to whom the
shares represented thereby are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the Corporation. Any or
all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
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<PAGE>
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation as if he were such officer, transfer agent or registrar at
the date of issue.
Section 2. Lost Certificates. The board of directors may direct a new
stock certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the owner
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the board of directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 3. Transfers of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares accompanied by
proper evidence of authority to transfer, the Corporation shall issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 4. Fixing Record Date.
(a) In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the board of directors may
fix a record date, which record date shall not precede the date upon
which the resolution fixing the record date is adopted by the board
of directors, and which record date shall not be more than sixty nor
less than ten days before the date of such meeting. If no record is
fixed by the board of directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived,
at the close of business on the day next preceding the next day on
which the meeting is held. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders
shall apply to any adjournment of the meeting; provided, however,
that the board of directors may fix a new record date for the
adjourned meeting.
(b) In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing
without a meeting, the board of directors may fix a record date,
which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of
directors, and which date shall not be more than ten days after the
date upon which the resolution fixing the record date is adopted by
the board of directors. If no record date has been fixed by the
board of directors, the record date for determining stockholders
entitled to consent to corporate action in writing without a
meeting, when no prior action by the board of directors is required
by the General Corporation Law of Delaware, shall be the first date
on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation by delivery to
its registered office in Delaware, its principal place of business
or an officer or agent of the Corporation having custody of the book
in which proceedings of meetings of stockholders are recorded.
Delivery made to the Corporation's registered office shall be by
hand or by certified or registered mail, return receipt requested.
If
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<PAGE>
no record date has been fixed by the board of directors and prior action by the
board of directors is required by the General Corporation Law of Delaware, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business on the day on
which the board of directors adopts the resolution taking such prior action.
(c) In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled
to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action,
the board of directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than
sixty days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall
be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
Section 5. Registered Stockholders. The Corporation shall be entitled to
treat the record holder of any shares of stock of the Corporation as the owner
thereof for all purposes, including all rights deriving from such shares, and
except as required by law shall not be bound to recognize any equitable or other
claim to, or interest in, such shares or rights deriving from such shares, on
the part of any other person, including, but without limiting the generality
thereof, a purchaser, assignee or transferee of such shares or rights deriving
from such shares, unless and until such purchaser, assignee, transferee or other
person becomes the record holder of such shares, whether or not the Corporation
shall have either actual or constructive notice of the interest of such
purchaser, assignee, transferee or other person. Any such purchaser, assignee,
transferee or other person shall not be entitled to receive notice of the
meetings of stockholders, to vote at such meetings, to examine a complete list
of the stockholders entitled to vote at meetings, or to own, enjoy, and exercise
any other property or rights deriving from such shares against the Corporation,
until such purchaser, assignee, transferee or other person has become the record
holder of such shares.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation shall commence
or end at such time as the board of directors may designate.
Section 2. Execution of Instruments. Contracts, deeds, documents and
instruments shall be executed by the chief executive officer, if any, the
president or the chief operating officer unless the board of directors shall, in
a particular situation or as a general direction, designate another procedure
for their execution.
Section 3. Checks and Drafts. The Corporation shall establish a bank
account for deposit of the funds of the Corporation and the drawing of checks or
drafts thereon. All checks or drafts drawn on such account shall require the
signature of one of the president, the chief
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executive officer or the chief operating officer of the Corporation. The
appointment of additional signatories of the bank account and the opening of
additional bank accounts shall require the approval of the board of directors.
Section 4. Corporate Seal. The corporate seal, if the directors shall
adopt one, shall have inscribed thereon the name of the Corporation, the year of
its organization and the words "Corporate Seal, Delaware." The seal may be used
by causing it or a facsimile thereof to be impressed, affixed, or reproduced in
any other manner.
Section 5. Voting Shares in Other Corporations. In the absence of other
arrangements by the board of directors, shares of stock issued by any other
corporation and owned or controlled by this Corporation may be voted at any
stockholders' meeting of the other corporation by the chief executive officer of
this Corporation, if any, the president of this Corporation or, if he or she is
not present at the meeting, by the chief operating officer of this Corporation,
if any, or if so determined by the board of directors, by a vice president of
the Corporation designated by the board, and in the event that none of the chief
executive officer, the president, the chief operating officer or such vice
president are present at a meeting, the shares may be voted by such person as
the president and secretary of this Corporation shall by duly executed proxy
designate to represent this Corporation.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Definitions. As used in this article, the term "person" means
any past, present or future director or officer of the Corporation or any
subsidiary or operating division thereof.
Section 2. Indemnification Granted. The Corporation shall indemnify, to
the full extent and under the circumstances permitted by the General Corporation
Law of the State of Delaware in effect from time to time, any person as defined
above, made or threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director or
officer of the Corporation or a subsidiary or operating division thereof, or is
or was an employee or agent of the Corporation, or is or was serving at the
specific request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, or
by reason of any action alleged to have been taken or omitted in such capacity,
against costs, charges, expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
or on such person's behalf in connection with such action, suit or proceeding
and any appeal therefrom, if such person acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the
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<PAGE>
best interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his or her conduct was
unlawful. The termination of any action, suit, or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that such conduct
was unlawful.
Section 3. Requirements for Indemnification. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or a
subsidiary thereof or a designated officer of an operating division of the
Corporation, or is or was serving at the specific request of the Corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, or by reason of any action alleged to
have been taken or omitted in such capacity, against costs, charges and expenses
(including attorneys' fees) actually and reasonably incurred by such person or
on such person's behalf in connection with the defense or settlement of such
action or suit and any appeal therefrom, if such person acted in good faith and
in a manner that such person reasonably believed to be in or not opposed to the
best interests of the Corporation except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of such
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such costs, charges and expenses
which the Court of Chancery or such other court shall deem proper.
Section 4. Success on Merits of any Action. Notwithstanding any other
provision of this Article, to the extent that a director, officer, employee or
agent of the corporation or any subsidiary or operating division thereof has
been successful on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in this Article, or in defense of any claim, issue or
matter therein, such person shall be indemnified against all costs, charges and
expenses (including attorneys' fees) actually and reasonably incurred by such
person or on such person's behalf in connection therewith.
Section 5. Determination of Standard of Conduct. Any indemnification
under Sections 2 and 3 of this Article (unless ordered by a court) shall be paid
by the Corporation only after a determination has been made (1) by the board of
directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such quorum is not
obtainable, or even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders, that indemnification of the director, officer, employee or agent
is proper in the circumstances of the specific case because such person has met
the applicable standard of conduct set forth in Sections 2 and 3 of this
Article.
Section 6. Advance Payment; Representation by Corporation.
Costs, charges and expenses (including attorneys' fees) incurred by a person
referred to in Sections 2 and 3 of this Article in defending a civil or criminal
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding;
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<PAGE>
provided, however, that the payment of such costs, charges and expenses incurred
by a director or officer in such capacity as officer or director (and not in any
other capacity and which service was or is rendered by such person while a
director or officer) in advance of the final disposition of such action, suit or
proceeding shall be made only upon receipt of an undertaking by or on behalf of
the director or officer to repay all amounts so advanced in the event that it
shall ultimately be determined that such director or officer is not entitled to
be indemnified by the Corporation as authorized in this Article. Such costs,
charges and expenses incurred by other employees and agents may be so paid upon
such terms and conditions, if any, as the board of directors deems appropriate.
The Corporation may, in the manner set forth above, and upon approval of such
director, officer, employee or agent, authorize the Corporation's counsel to
represent such person, in any action, suit or proceeding, whether or not the
Corporation is a party to such action, suit or proceeding.
Section 7. Procedure for Obtaining Indemnity. Any indemnification under
Sections 2, 3 and 4, or advance of costs, charges and expenses under Section 6
of this Article, shall be made promptly, and in any event within sixty (60)
days, of the written notice of the director, officer, employee or agent. The
right to indemnification or advances as granted by this Article shall be
enforceable by the director, officer, employee or agent in any court of
competent jurisdiction if the Corporation denies such request, in whole or in
part, or if no disposition thereof is made within sixty (60) days. Such person's
costs and expenses incurred in connection with successfully establishing a right
to indemnification, in whole or in part, in any such action shall also be
indemnified by the Corporation. It shall be a defense to any such action (other
than an action brought to enforce a claim for the advance of costs, charges and
expenses under Section 6 of this Article where the required undertaking, if any,
has been received by the Corporation) that the claimant has not met the standard
of conduct set forth in Section 2 or 3 of this Article, but the burden of
proving such defense shall be on the Corporation. Neither failure of the
Corporation (including its board of directors, its independent legal counsel,
and its stockholders) to have made a determination that indemnification of the
claimant is proper in the circumstances because such person has met the
applicable standard of conduct set forth in Section 2 or 3 of this Article, nor
the fact that there has been an actual determination by the Corporation
(including its board of directors, its independent legal counsel, and its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
Section 8. Indemnification Not Exclusive. This right of indemnification
shall not be deemed exclusive of any other rights to which a person indemnified
herein may be entitled by law, agreement, vote of stockholders or disinterested
directors or otherwise, and shall continue as to a person who has ceased to be a
director, officer, designated officer, employee or agent and shall inure to the
benefit of the heirs, executors, administrators and other legal representatives
of such person. It is not intended that the provisions of this article be
applicable to, and they are not to be construed as granting indemnity with
respect to, matters as to which indemnification would be in contravention of the
laws of Delaware or of the United States of America, whether as a matter of
public policy or pursuant to statutory provision.
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<PAGE>
Section 9. Invalidity of Certain Provisions. If this Article or any
portion hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each director,
officer, employee and agent of the Corporation or any subsidiary or operating
division thereof as to costs, charges and expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement with respect to any action, suit
or proceeding, whether civil, criminal, administrative or investigative,
including any action by or in the right of the Corporation, to the full extent
permitted by any applicable portion of this Article that shall not have been
invalidated and to the full extent permitted by applicable law.
Section 10. Miscellaneous. The board of directors may also on behalf of
the Corporation grant indemnification to any individual other than a person
defined herein to such extent and in such manner as the board in its sole
discretion may from time to time and at any time determine.
ARTICLE IX
AMENDMENT
These bylaws may be amended or repealed by the affirmative vote of a majority of
the directors then in office.
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<PAGE>
NOW, THEREFORE, BE IT RESOLVED, that it is deemed advisable and in the
best interests of all stockholders to amend Article II, Section 2 of the Bylaws
of the Corporation by deleting the existing Section 2 and replacing it with a
new Section 2, to read in its entirety as set forth in Exhibit A attached
hereto, and that such amendment is hereby made and effective as of the date
hereof.
<PAGE>
Exhibit A
Section 2. Annual Meetings and Advance Notice of Proposals.
The annual meeting of stockholders for the election of directors and the
transaction of other business as may properly come before the meeting shall be
held in each year at such date and time as shall be designated from time to time
by the board of directors and stated in the notice of the meeting.
At any annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the annual meeting. To be
properly brought before an annual meeting business must be (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the board of directors, (b) otherwise properly brought before the meeting by or
at the direction of the board of directors, or (c) otherwise properly brought
before the meeting by a stockholder who is a holder of record at the time of the
giving of the notice provided for in this paragraph, who is entitled to vote at
the annual meeting and who complies with the procedures set forth in this
paragraph. For business properly to be brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof, in proper
written form, either by personal delivery or by United States mail, postage
prepaid, to the Secretary of the Corporation (the "Secretary"). To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 45 days nor more
than 75 days prior to the date on which the Corporation first mailed its proxy
materials for the immediately preceding annual meeting; provided, however, that
-------- -------
in the event that the date of the annual meeting is changed by more than 30 days
from the anniversary date of the immediately preceding annual meeting, notice by
the stockholder to be timely must be so delivered or received not earlier than
the 120th day prior to such annual meeting and not later than the close of
business on the later of the 70th day prior to such annual meeting or the 10th
day following the day on which public announcement of the date of such meeting
is first made. To be in proper written form, a stockholder's notice to the
Secretary shall set forth in writing as to each matter the stockholder proposes
to bring before the annual meeting: (i) a brief description of the business
desired to be brought before the annual meeting and the reasons for conducting
such business at the annual meeting; (ii) the name and address, as they appear
on the corporation's books, of the stockholder proposing such business; (iii)
the class and number of shares of the Corporation that are beneficially owned by
the stockholder; (iv) any material interest of the stockholder in such business;
and (v) if the stockholder intends to solicit proxies in support of such
stockholder's proposal, a representation to that effect. The foregoing notice
requirements shall be deemed satisfied by a stockholder if the stockholder has
notified the Corporation of his or her intention to present a proposal at an
annual meeting and such stockholder's proposal has been included in a proxy
statement that has been prepared by management of the Corporation to solicit
proxies for such annual meeting; provided, however, that if such stockholder
-------- -------
does not appear or send a qualified representative to present such proposal at
an annual meeting, the Corporation need not present such proposal for a vote at
such meeting, notwithstanding that proxies in respect of such vote may have been
received by the Corporation. Notwithstanding anything in the bylaws to the
contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this paragraph. The chairman of an
annual meeting may refuse to permit any business to be brought before an annual
meeting that fails to comply with the foregoing procedures or, in the case of a
stockholder proposal, if the stockholder solicits proxies in support of such
stockholder's proposal without having made the representation required by clause
(v) of the third preceding sentence.
Only persons who are nominated in accordance with the procedures set forth
in this paragraph shall be eligible for election as directors at a meeting of
stockholders. Nominations of persons for election to the board of directors of
the Corporation may be made at a meeting of stockholders by or at the direction
of the board of directors or by any stockholder who is a stockholder of record
at the time of giving of the notice of nomination provided for in this
paragraph, who is entitled to vote for the election
<PAGE>
of directors and who complies with the procedures set forth in this paragraph.
Any stockholder of record entitled to vote for the election of directors at a
meeting may nominate persons for election as directors only if timely written
notice of such stockholder's intent to make such nomination is given, either by
personal delivery or by United States mail, postage prepaid, to the Secretary.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the Corporation (a) with respect to an
election to be held at an annual meeting of stockholders, not less than 45 days
nor more than 75 days prior to the date on which the Corporation first mailed
its proxy materials for the immediately preceding annual meeting; provided,
--------
however, that in the event that the date of the annual meeting is changed by
- -------
more than 30 days from the anniversary date of the immediately preceding annual
meeting, notice by the stockholder to be timely must be so delivered or received
not earlier than the 120th day prior to such annual meeting and not later than
the close of business on the later of the 70th day prior to such annual meeting
or the 10th day following the day on which public announcement of the date of
such meeting is first made and (b) with respect to an election to be held at a
special meeting of stockholders for the election of directors, not earlier than
the 90th day prior to such special meeting and not later than the close of
business on the later of the 60th day prior to such special meeting or the 10th
day following the day on which public announcement is first made of the date of
the special meeting. Each such notice shall set forth: (a) the name and
address of the stockholder who intends to make the nomination and of the person
or persons to be nominated; (b) a representation that the stockholder is a
holder of record of stock of the Corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (c) a description of all arrangements
or understandings between the stockholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would have been required
to be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had each nominee been nominated, or intended
to be nominated, by the board of directors; (e) the consent of each nominee to
serve as a director of the Corporation if so elected; and (f) if the stockholder
intends to solicit proxies in support of such stockholder's nominee(s), a
representation to that effect. The chairman of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedures or if the stockholder solicits proxies in favor of such
stockholder's nominee(s) without having made the representation required by the
immediately preceding sentence. Only such persons who are nominated in
accordance with the procedures set forth in this paragraph shall be eligible to
serve as directors of the corporation.
For purposes of the two immediately preceding paragraphs, "public
announcement" shall mean disclosure (i) in a press release reported by the Dow
Jones News Service, Reuters Information Service or any similar or successor news
wire service or (ii) in a writing distributed generally to stockholders or (iii)
in a document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Sections 13, 14 or 15(d) of the Securities Exchange Act
of 1934 or any successor provisions thereto.
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
<TABLE>
<S> <C>
American List Corporation Delaware
American Student List Company, Inc. New York
Arnold Communications, Inc. Massachusetts
BDDH Group United Kingdom
Blau Marketing Technologies, Inc. Delaware
Bounty Group Holdings Limited United Kingdom
Bounty Holdings Limited United Kingdom
Brann Holdings Limited United Kingdom
Brann Limited United Kingdom
Clinical Communications, Inc. Delaware
Echo Marketing, Inc. Georgia
GEM Communications Inc. Connecticut
Halliday Jones Sales Limited United Kingdom
Health Products Research, Inc. New Jersey
MKM Marketinginstitut GmbH Germany
National Sales Services, Inc. Delaware
Rapid Deployment Group Limited United Kingdom
Rapid Deployment Limited United Kingdom
Response Marketing Group, LLC Georgia
Sampling Corporation of America Illinois
Snyder Complete Target Marketing Solutions Nevada
Snyder Direct Services, Inc. Delaware
Snyder Healthcare Sales, Inc. New Jersey
Snyder Marketing Services, Inc. Delaware
Snyder Medical Services France France
</TABLE>
<PAGE>
Exhibit 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K into the Company's previously filed
Registration Statements File Numbers 333-13079, 333-33829 and 333-74741.
Arthur Andersen LLP
Washington, DC
March 30, 1999
<PAGE>
Exhibit 23.2
Consent of Independent Accountants
We hereby consent to the incorporation of our report dates May 30, 1997 on
the financial statements of Brann Holdings Limited as of and for the year ended
December 31, 1996 which appears on page 54 of this Form 10-K into the Company's
previously filed Registration Statements on Form S-8 (Registration
Numbers 333-13079, 333-33829 and 333-74741).
Price Waterhouse
Chartered Accountants and Registered Auditors
Bristol, England
March 30, 1999
<PAGE>
Exhibit 23.3
Consent of Independent Certified Public Accountants
We have issued our report dated April 11, 1997 accompanying the consolidated
financial statements of American List Corporation, appearing in the Annual
Report of Snyder Communications, Inc. on Form 10-K for the year ended December
31, 1998 (the consolidated financial statements of American List Corporation are
not presented separately therein). We hereby consent to the incorporation by
reference of said report in the previously filed Registration Statements of
Snyder Communications, Inc. on Form S-8 (Registration Numbers 333-13079,
effective September 30, 1996, 333-33829, effective August 18, 1997 and 333-
74741, effective March 19, 1999).
Grant Thornton LLP
Melville, New York
March 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
company's consolidated financial statements included in the Form 10-K for the
year ened December 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997<F1>
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 73,595 89,829
<SECURITIES> 612 2,348
<RECEIVABLES> 132,424 105,513
<ALLOWANCES> 10,002 7,817
<INVENTORY> 0 0
<CURRENT-ASSETS> 359,229 322,532
<PP&E> 133,097 86,374
<DEPRECIATION> 52,702 40,244
<TOTAL-ASSETS> 695,660 452,346
<CURRENT-LIABILITIES> 313,873 309,248
<BONDS> 0 0
0 0
0 0
<COMMON> 71 68
<OTHER-SE> 357,303 118,193
<TOTAL-LIABILITY-AND-EQUITY> 695,660 452,346
<SALES> 815,303 612,039
<TOTAL-REVENUES> 815,303 612,039
<CGS> 554,057 430,245
<TOTAL-COSTS> 554,057 430,245
<OTHER-EXPENSES> 211,539 200,949
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,068 4,795
<INCOME-PRETAX> 51,127 (20,438)
<INCOME-TAX> 28,321 4,916
<INCOME-CONTINUING> 22,806 (25,354)
<DISCONTINUED> 0 (1,507)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 22,806 (26,861)
<EPS-PRIMARY> 0.33 (0.42)
<EPS-DILUTED> 0.32 (0.42)
<FN>
<F1>Restated
</FN>
</TABLE>
